EY comments on Ofgem's announcement for a competition review of the energy market

27 March 2014

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Frances Warburton, EY Economic Advisory Director, said:

"Given the mounting pressure on the UK’s energy industry from policies and politics, a market investigation, although likely to be painful in the short term, should be welcomed by everyone involved. The well-established structure of a market investigation should provide some much needed respite from the relentless point scoring over the energy sector during the last 12 months. In the long term, it could lead to a renewed relationship between consumers and industry based on improved levels of trust.

"The broad range of remedies on the table makes it difficult to firmly assess the direct impact and outcome of an investigation at this stage. It is conceivable that the investigation will not find fault with the utilities themselves, but recommend that the market structure requires change to overcome barriers to entry and to enable competition.

"As part of the investigation, regulation of the sector will come under scrutiny and could be subject to change. This will herald the most important phase for the industry since privatisation 25 years ago. In a move widely seen as a direct challenge to Ofgem’s role, it will be the Competition and Markets Authority (CMA) that will decide the future path of the market and the level of regulation it will require.

"As we are entering a prolonged period of uncertainty over the nature of the CMA’s intervention and its possible outcomes, the danger of a self-imposed cap on much needed investment is real. The CMA and Government now need to be mindful of the impact of an investment hiatus, and consider how to avoid a capacity crunch just as margins become historically thin."

Frances Warburton
EY Economic Advisory Director
+44 (0) 20 7951 6306
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