An official investigation into over-charging customers for gas and electricity raised an “increasing risk” of blackouts, claims Sam Laidlaw, chief executive of the UK’s biggest gas supplier, Centrica . Really?

4.06pm GMT

They key question is: would a competition inquiry into the electricity industry raise the risk of power blackouts?

In the absence (sadly) of a clear reply, here is a summary of what I think has emerged today:

3.47pm GMT

Following from the last post, also in October the Royal Academy of Engineering prepared a report on the issue for the prime minister’s Council for Science and Technology.

This said while power outages were unlikely, they were not inconceivable, and electricity companies needed greater (my italics) incentives to build new generation capacity.

Blackouts are still unlikely, and could only occur if there are sudden threats to the system, such as the unplanned shutdown of a power station, problems with the interconnectors that bring gas and electricity to the UK, and a prolonged cold snap. But the report, which was prepared for the prime minister’s Council for Science and Technology, found that these events have all occurred in recent years though not at the same time and could easily happen again.

John Roberts, the former chairman of United Utilities who led the work, told the Guardian that electricity generators may need to be given fresh financial incentives paid via energy bills to encourage them to avoid power cuts… "Energy companies have no legal obligation to keep the lights on. There will need to be incentives."

3.25pm GMT

Sam Laidlaw is not alone in worrying about blackouts, or at least thinking they are possible.

In January, Sir John Armitt, the man credited with delivering the successful London 2012 Olympic Games and now advising Labour about future infrastructure needs, said in an interview with Building magazine (reported in the Guardian) that blackouts could be a good way to jolt ministers into taking action:

In harsh political terms [blackouts] would be the best possible thing that could happen because this country is extremely good in a crisis.

We are very close to being in a crisis when it comes to energy the Central Electricity Generating Board used to say that a resilient network operated on a 25% capacity surplus. We’re down to 4% because we’ve gone slower than we should have done on nuclear.

We know what the calculations are on the supply side because no new kit [power plants] will be built before 2015-16, but on the supply side all official estimates have underestimated GDP [gross domestic product] growth and therefore energy demand.

Users will be financially incentivised to turn their power off for short periods at peak times, easing the burden on the national system, while energy companies that had planned to decommission power plants will be paid to bring them back up and running at times of stress.

2.29pm GMT

My summary so far is:

2.02pm GMT

Back to California.

It has been pointed out below the line that the Congressional Budget Office report (see 11:51am) came out before the Enron scandal erupted, which revealed the company’s role in the problems. I hold my hands up, I’d forgotten they were linked. Here is a taste:

Just a few thoughts triggered by the picture at the head of the article and the idea stated in a front page headline at 1244GMT that an investigation "could trigger blackouts"…..Oh really ? If you are investigated, you’ll pull the plug ?

Firstly, the Californian brownouts of 2001 were the result of deliberate manipulation of the energy market by among others Enron, who went as far as illegally shutting down pipelines and attempted to blackmail the state. The market manipulation pushed prices up 800% …….. If there is a repeat of such actions here, I would argue that this in itself is proof that that energy is too important to be left with the "free market", unless regulation grows epic fangs and actually uses them.

1.52pm GMT

Elsewhere on the Guardian my colleague Damian Carrington has written a feisty blog arguing the very opposite of what Laidlaw has warned: that shaking up the Big 6 energy suppliers should improve generation and security of supply.

Here is just one of the points he makes:

Energy companies are always quick to raise the spectre of the lights going out and it’s easy to understand why: it’s scary way of reminding politicians to do what the big six tell them. But energy prices are highest when supply is most stretched. If the lights ever did get close to going out, the big six would rake it in. The reason why the margin between capacity and peak demand is getting so narrow is because the big six have mothballed or postponed power stations until the prospective profits get juicy enough.

12.25pm GMT

Worries about the gap between demand and supply – and the willingness of privatised utilities to fill it – are not new.

This paper from the House of Commons Library in 2010 is prescient. The Library is highly regarded by all parties for its a-political and rigorous work.

The current liberalised market is unlikely to deliver the new electricity generating capacity and infrastructure that the UK urgently requires by the middle of the decade. Private companies are reluctant to make major investments in generation and transmission without greater certainty about the payback.

12.03pm GMT

Centrica has sent me some analysts’ reaction to today’s Ofgem announcement.

Morgan Stanley:

This will likely stop almost all generation investments from the Big 6.

It is likely in our view that the hiatus in power generation investment we have seen in recent years will continue and probably deepen.

11.51am GMT

The first response I had to this subject on Twitter this morning was

@JulietteJowit @guardian @MirrorJames Foolish to dismiss the prospect of Blackouts. California had Blackouts after "price freezes" #r4today

On the supply side, the plan’s freeze on retail prices left the three big utilities in a financial shambles when wholesale prices in the spot marketwhere those utilities were acquiring nearly half of their powerrose above the freeze level. The plan made the utilities particularly dependent on that market in two ways: it encouraged them to sell their fossil-fuel generating capacity, and it discouraged them from signing new long-term supply contracts that could have protected them from adverse movements in prices.

Faced with a universal-service requirement (they could not unilaterally drop customers) and with a negative cash flow on nearly half of their sales, the utilities saw their losses mount. Lenders downgraded their creditworthiness, thus raising their costs for new borrowing. Moreover, independent power generators were able to push up wholesale prices further and even withdrew supplies when it looked as though the utilities might not be able to pay for their purchases…

On the demand side two problems coincided. Extreme weather and strong economic growth put stress on the market by increasing the use of power. At the same time, the freeze on retail prices magnified the impact of that stress on wholesale prices by eliminating incentives for consumers to conserve power. Even a small drop in electricity uselike the decline that occurred in San Diego when the price freeze there was temporarily liftedwould have been enough to let the state avoid some of the disruptions it has faced.

California responded to its immediate concerns about the availability of electricity and the volatility of prices by directly intervening in the marketa response that could prove costly to electricity consumers and taxpayers. Long-term solutions to California s electricity problems will most likely require three changes: removing barriers to the addition of generating capacity, eliminating bottlenecks in the elec- tricity transmission system, and removing regulatory restrictions on the sale of power throughout the broad western market. Those actions would help make the supply of electricity more responsive to changes in prices. On the demand side, the prospects for successful restructuring would also improve if consumers faced the full costs of electricity and were better able to adjust their use of power in response to changing prices.

11.21am GMT

A video interview with Sam Laidlaw on the Centrica website (here) gives some insight into the rationale behind his concern about an increasing risk of blackouts: his argument appears to be that during the competition probe energy companies will not want to invest in new power generation and with demand rising, gas supplies under threat in places like Ukraine, and old nuclear and coal power stations due to be retired, this could lead to a gap between demand and supply.

Such a gap could, in theory, be dealt with by reducing the intensity (for want of a better word) of electricity supplied, called brownouts, or cutting electricity to some customers – blackouts.

The concern about this inquiry is it would last two years at a time when we have already had five years of investment hiatus because of electricity market reform. We’ll then have a further two years of under-investment.

This is coming at a time when actually Britain’s energy security is being seriously challenged, not just in power generation but if you look and see what’s happening in Ukraine for gas supplies as well.

Clearly if we have this competition referral our ability to invest is going to be handicapped because we wouldn’t invest in new power generation if there was a possibility that you might have to divest as a result of a competition referral. So that is the political risk during this period.

There will be a period of some regulatory uncertainty, which will make it very difficult for us to invest, particularly in power generation, and therefore I think shareholders may have to be a little patient during this process.

10.12am GMT

I’m still hoping the BBC will load up the Sam Laidlaw interview as an AudioBoo file. Until then, this is a fuller report of what he said, and the reply by the energy secretary Ed Davey, via the BBC News story:

Sam Laidlaw, Centrica chief executive, said he hoped "a lengthy review process will not damage confidence in the market, when over £100bn of investment in new infrastructure is needed".

When questioned on the BBC Radio 4’s Today programme over whether it would mean power outages he said: "There is an increasing risk. A lot can be done in terms of demand management, but actually building a new gas power station does take four years.

9.50am GMT

Here, in a nutshell, is why today’s announcement has been made

A picture tells a thousand words: energy price hikes vs inflation and weekly earnings #energy @ofgem pic.twitter.com/p3ZqvOA1RL

9.38am GMT

Ofgem, the energy industry regulator, today announced it would ask the Competition and Markets Authority (CMA) to investigate electricity and gas suppliers. It hoped to

Once and for all clear the air and allow the CMA to ensure that there are no further barriers to effective competition.

Retail profits increasing from £233 million in 2009 to £1.1 billion in 2012, with no clear evidence of suppliers becoming more efficient in reducing their own costs, although further evidence would be required to determine whether firms have had the opportunity to earn excess profits.