Probe into energy firms' £100 per home profits

Britain's Big Six energy companies face the threat of being broken up for ripping off customers after regulator Ofgem asked the top competition watchdog to investigate their profits and prices.

The Competition and Markets Authority will begin its “once and for all” investigation “immediately”, Ofgem said, and is likely to conclude by the end of next year.

The referral, which Ofgem first proposed in March, came as the regulator published new data suggesting that energy suppliers’ profit margins had increased further this month.

It suggested they stood to make £101 before interest and tax from a typical bill over the next year - a 7.5pc margin and an increase from £96 last month and from £48 a year ago.

The Big Six companies - British Gas, SSE, Npower, EDF, Scottish Power and E. On - have so far resisted calls to cut prices in the wake of falling wholesale costs, despite the fact they typically claim to require just a 5pc margin.

The CMA probe will consider whether the six, which together control 95pc of the market, are making excess profits.

It will investigate the way in which they “consistently” set higher prices for loyal customers who don’t switch and will consider how companies benefit from having both power generation and consumer-facing businesses.

Richard Lloyd, executive director of consumer group Which?, said the inquiry was a “watershed moment for the broken energy market and millions of people struggling to cope with spiralling bills”.

Ofgem concluded in March that energy companies had raised electricity and gas prices to unjustifiably high levels.

It said at the time that it was minded to call for a CMA inquiry as competition was “not working well”.

Ofgem said it had received “near-unanimous support for a referral” to the CMA. The probe was welcomed by all the major energy suppliers yesterday.

“The CMA investigation offers an important opportunity to clear the air,” Dermot Nolan, Ofgem chief executive, said.

Discussing its initial findings in March, Mr Nolan said: “Prices have risen more than they should have, we believe, over the last few years. Profits have risen, prices have risen, margins have risen.

“On that basis you can say consumers have been paying too much and we need more effective competition to drive those prices down. Competition is not working well, consumers are probably paying more than they should have and we need to put in step a process that is going to force competition to drive costs down.”