June 22, 2011 / 7:03 AM / 8 years ago

UPDATE 2-UK suppliers face tough power auction reforms

* Small suppliers favour higher auction levels

* Ofgem unlikely to refer suppliers to competition body

* Scottish Power investigated for misleading information

By Karolin Schaps and Sarah Young

LONDON, June 22 (Reuters) - Britain’s six largest utilities face tough retail power market reforms next year which could force them to auction off more than one fifth of electricity they produce, energy regulator Ofgem said on Wednesday.

The regulator proposed in March to impose power production auctions of up to twenty percent of generation on the Big Six utilities — Scottish and Southern Energy (SSE.L), Centrica (CNA.L), Iberdrola’s (IBE.MC) Scottish Power, RWE npower (RWEG.DE), EDF Energy (EDF.PA) and E.ON UK (EONGn.DE).

But Ofgem’s three-month consultation showed some respondents, especially smaller power suppliers such as First Utility, favour full production auctions to prevent large utilities from supplying and producing power at the same time.

“Some people think the figure should be higher so we’re undertaking further analysis and will come up with an impact analysis later this year. It’s important to us that the volume is efficient enough to have an impact on liquidity,” a spokesman for Ofgem said.

The reforms are expected to come into force next year, but exact timing depends on whether the utilities will refer proposals to the Competition Commission.

Ofgem said suppliers were cooperating well and that it was unlikely any of them would be referred to the Competition Commission, but added they still risk referral if they fail to comply with reforms at a later stage.

“We will pursue breaking up the stranglehold of the Big Six on the electricity market to encourage more firms, like new arrival the Co-op, to enter the energy market and increase the competitive pressure on the Big Six,” Chief Executive Alistair Buchanan said in a statement.

Britain’s energy regulator said the rise in energy prices made competition in the gas and electricity market even more important to ensure consumers receive a fair deal.

Ofgem research showed on Wednesday that price gains in wholesale power and gas market since the start of the year will result in a 15 pound rise in energy bills for consumers over the next year.

Gas for delivery in the winter is around 30 percent higher than wholesale winter gas prices in 2010, Ofgem said, mainly due to unrest in the Middle East and North Africa, which includes a number of gas exporting countries.

Scottish Power announced earlier this month it will increase domestic gas tariffs by 19 percent and power bills by 10 percent from Aug. 1. [ID:nLDE7561KI]

UK inflation hit a 2-1/2 year high in May, squeezing Britons’ finances and a study from the Institute for Fiscal Studies showed poorer families, who spend a bigger proportion of their income on food and fuel, have faced far higher inflation in recent years than richer ones. [ID:nLDE75D0RM]

“I want to see more clarity in billing to help consumers shop around and switch to the best deal (...) We are also working with Ofgem to sweep away the barriers to new companies entering the energy market so consumers can benefit from greater competition,” said Britain’s Energy Secretary Chris Huhne.


Ofgem also launched an investigation into misleading marketing information from Scottish Power issued at its recent price increase announcement.

The investigation will focus on the claim of 459 pounds in savings from the utility’s “Direct October 2012 offer”, Ofgem said.

This follows two other Ofgem investigations which Scottish Power, among others, is involved in relating to deviation between its standard and direct debit tariffs and misconduct in doorstep sales.

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