SSE PLC Shares Slide As Ofgem Bares Its Teeth

SSE (LSE: SSE) suffered a fall in its share price this week as Ofgem (the UK’s National Regulatory Authority for the energy market) has highlighted failings from the major suppliers to pass on wholesale price reductions to its customers. The major suppliers in the UK market referred to as the ‘big six’ are Centrica (LSE: CNA), E.ON, EDF, Npower, ScottishPower and SSE.

Ofgem reports that “wholesale gas and electricity prices have dropped significantly, spot gas prices being at their lowest level since September 2010, down 38% compared with the previous year. The trend has been similar in electricity, with prices reaching their lowest level since April 2010, currently around 23% lower than this time last year”.

The regulator has asked the Competition and Markets Authority (CMA) to undertake an investigation into the energy industry. Consumer confidence in the energy companies has disappeared, yet the big six appear to be doing little to try and win back customers or take action to avert potential fines or investigations for profiteering or price-fixing.


Consumers Do Not Trust The Energy Suppliers

The energy companies believe the market is competitive; however, consumers think differently. A YouGov poll conducted in February asked consumers if they thought ‘The big energy suppliers act as a cartel’ and 67% of respondents agreed that they do.

Ann Robinson, a director of uSwitch, said “If one of the Big Six companies could now take the lead and cut prices, the other energy companies (might) do the same”, adding credence to the widely held opinion that energy companies act in concert and therefor minimise consumer choice.

A further question polled the trust level between the energy companies and their consumers, and a staggering 92% of those polled did not trust the UK utilities industry.

SSE announced a 9.6% increase in pre-tax earnings in its results to 31st March 2014, which motivated MPs to demand that it passes more of its gains on to customers.

Centrica’s share price also suffered a drop, but this week shares appear to be being buoyed by recent takeover rumours from Qatari investors. In its 2014 annual report, it discusses regulatory interference in the industry and warns of “adverse consequences on the viability of investment in new technologies and the development of assets” if further interference or regulatory obligations for the industry are implemented.

It's clear consumers have had enough, but how much longer will shareholders stay on board? The only certainty ahead for the energy companies is that there will be changes to their regulatory framework. If you prefer investments that guarantee a predictable payback this complimentary report highlights 3 companies with predictable growth prospects. This exclusive report published by the Motley Fool comes with no obligation.

Lisa Walls-Hester does not own share in the above companies.