Understanding Regulation

Facts, Analysis and Comment

The Energy Market

The 2016 Competition and Markets Authority Report - Summary

The CMA summarised its conclusions as follows:-

"The investigation has found that 70% of domestic customers of the 6 largest energy firms are still on an expensive ‘default’ standard variable tariff. As these customers could potentially save over £300 by switching to a cheaper deal, the Competition and Markets Authority (CMA) will be enabling more of them to take advantage. The CMA has found that customers have been paying £1.4 billion a year more than they would in a fully competitive market.

Suppliers will be ordered to give Ofgem details of all customers who have been on their default tariff for more than 3 years, which will be put on a secure database to allow rival suppliers to contact customers by letter and offer cheaper and easy-to-access deals based on their actual energy usage. Ofgem will control access to the database and carry out testing on the frequency and form of communications, to ensure it is effective in helping customers move on to better deals. Although customers can supposedly opt out at any time if they wish, some commentators expressed privacy concerns, noting that it may be possible for appending services to add phone and email data to the lists supplied by Ofgem.

The options to switch are far more limited for the 4 million households on prepayment meters. For these customers, a transitional price cap will be introduced which will reduce bills by around £300 million a year. The cheapest tariffs for such customers are currently £260 to £320 a year more expensive than those available for direct debit customers. The price cap will remain in place until the introduction of smart meters removes the limitations on such customers accessing better deals.

The CMA is also introducing a range of measures to revitalise competition and reduce the costs borne by customers. These include pressing ahead with reforming outdated systems for measuring and charging energy that distort competition between suppliers, reducing the costs of transmitting electricity and using competition to help ensure that financial support for low carbon generation is allocated at the lowest cost to customers. Price comparison websites (PCWs) will also be enabled to play a more active role in helping customers find the best offers for them and given access to meter data which will enable customers to search instantly for deals.

The measures will also tackle specific issues faced by micro-businesses (those that employ fewer than 10 people) – 45% of which are on default tariffs. Suppliers will now be required to publish their prices for such customers and will no longer be able to lock them into expensive ‘rollover’ contracts.

Ofgem will also be given much greater influence over the detailed codes that govern the working of the market – and which currently give undue influence to established industry participants over decisions that affect competition and consumers – and more powers to enable it to scrutinise the performance of the market and suppliers as well as the impact of policy."

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Click on these images to access three helpful graphics which summarise much of the above.

A huge amount of explanation and further information is on the CMA website. And follow this link for a further discussion of switching and effective competition.

 

Martin Stanley