The planned referral comes after Ofgem, the Office of Fair Trading (OFT), and the CMA, completed the first annual competition assessment into the market and concluded there was “weak competition”.
This is because of “weak customer response” with low levels of switching and consumer trust levels at only 43 per cent, which “is not consistent with a competitive market”.
Ofgem said there is also “continued evidence of incumbency advantages” for the big six suppliers which have “not changed significantly over time”.
The report stated these sticky customers are charged more for their energy than those from outside the incumbent region or fuel.
Ofgem’s assessment also said there is “possible tacit coordination” between the six major suppliers where “they may be able to anticipate each other’s future actions” and change their prices at around the same time and of the same magnitude, without direct communication between them.
This does not breach competition law, but the regulator warned “it may result in competition being less effective”.
Ofgem also questioned the fairness of the 5 per cent profit margin the suppliers aim for, on the back of profits for the big six increasing from £3 billion in 2009 to £3.7 billion in 2012.
There is no conclusive evidence on profitability in the report, but the regulator said “the rise over the last few years allied to no clear evidence of increase efficiency is indicative of a possible lack of effective competition”.
The competitiveness of the energy market is said to also be hampered by barriers to entry and expansion for independent suppliers.
This is said to be partly cause by the vertical integration of the big six which “is not a strong feature of the market” and “makes it difficult for new entrants to compete”.
Ofgem said that the referral to the CMA “is timely and necessary” because the more extensive powers of the CMA “can address any long-term structural barriers to competition”.
The investigation into the market is expected to take around 18 months to complete.
Dermot Nolan, Ofgem chief executive, said: “Ofgem believes a referral offers the opportunity to once and for all clear the air and decide if there are any further barriers which are preventing competition from bearing down as hard as possible on prices.”
The energy regulator has also written to the energy companies stating they will “substantially increase” the level of penalties imposed for serious breaches of the rules.
This will come into force from the 1 June 2014.