Bosses at the major UK-listed energy companies will have breathed a sigh of relief after swerving the Labour party's proposed price freeze on household energy bills at last year's election. Reliable returns are a major part of the utilities' investment case, yet policy changes have introduced uncertainty for energy suppliers, and investors hoping for a more benign regulatory backdrop in 2016 may have their hopes dashed.
The Competition and Markets Authority (CMA) is due to publish its final decision regarding its energy supply investigation in April this year, while its provisional findings are due to be announced in January. Unsurprisingly, the process has been a lengthy one. The investigation deals with issues including the effectiveness of price competition in the sector, the cost of low-carbon electricity as well as the role of regulator Ofgem.
Centrica (CNA) and SSE (SSE) are the main UK-listed energy companies affected by the outcome of the CMA's investigation. Initial findings suggested remedies that included imposing a safeguard regulated tariff for customers that do not shop around and may be paying more than necessary for their energy bills. Either the CMA or Ofgem could set a maximum price level for suppliers' default tariffs. This would likely erode profit margins for the larger players. However, the Department of Energy and Climate Change distanced itself from this type of remedy in its November submission to the CMA.