In a letter to the regulator, the energy secretary noted that the average profit margin for gas is around three times that of electricity. Centrica, which has extensive upstream gas interests as well as supplying through British Gas, has charged the highest prices in the past three years. If gas supply made the same profit as electricity, he claimed a typical household would save £40 a year.
Ofgem is due to publish an assessment of competition in the energy market in March. While acknowledging Ofgem’s independence, Davey suggested the regulator may wish to order a full market investigation, which could result in the break up of any companies “found to have monopoly power to the detriment of the consumer”.
Davey also asked Ofgem to look at the role of energy efficiency and interconnection in the market.
The government slackened targets for its key energy efficiency initiative, Eco, in December as part of a drive to cut bills.
Davey did not mention this as he raised concerns the big six energy suppliers “still see their role as selling gas and electricity rather than having a different business model where the value proposition is to save households energy”. He is “particularly keen” the market be developed to promote energy efficiency.
On interconnection, he said the UK “is relatively poorly interconnected to other power markets at 5 per cent of capacity compared to a more optimal percentage of around 10 per cent”. National Grid estimates that improved electricity interconnection could save up to £1 billion a year.