Comments on Potential Mergers between
Major Players in UK Electricity Market

EIUG welcomes the fact that foreign investors are able to participate in the UK’s liberalised energy markets, whilst deploring the lack of liberalisation elsewhere that prevents UK consumers from accessing continental energy supplies and UK utilities from competing in these markets.

EIUG believes vertical integration and consolidation in the electricity market has already gone too far – competition in supply has declined – and choice in supply for industrial users is inadequate.EIUG notes that wholesale electricity prices have tripled in the last two years and are now amongst the most expensive in the EU – the market is failing to meet the needs of industrial consumers, whilst electricity generators have been making windfall profits.EIUG is sceptical about the extent to which advantages of economies of scale resulting from further consolidation would offset the inevitable disadvantages to consumers from a reduction in competition, especially in cases where very large international utility companies are concerned.

EIUG believes the extent of vertical integration is a major factor contributing to the relatively low levels of liquidity in the traded markets – that vertically integrated players often have access to information that is not available to consumers, independent producers and suppliers – and that both of these factors reduce market efficiency.For all the above reasons, EIUG believes that any proposals to reduce the number of competitors in the market should be subject to the most rigorous scrutiny by the Competition Commission, or European Commission if appropriate, to ensure that consumers are not further disadvantaged – and that a failure to do so would undermine the credibility of the UK regulatory regime.