The Competition and Markets Authority aims to improve trust and competition within the energy markets
The CMA’s provisional decision released in March 2016 had a predominantly domestic focus with remedies hoping to encourage more consumers to switch suppliers offering better value deals.
The investigation, which according to CMA officials has a cost of about £5 million, has largely decided to go forward with the recommendations made in its provisional findings. It has kept its retail market focus, deciding not to interfere in the wholesale market. The proposed changes will also have an impact on SME and microbusiness segments.
Battling the Big Six
After a heavy opposition from the Big Six energy suppliers, the CMA has reduced the overcharge figure to domestic customers from £1.7 billion to £1.4 billion a year between 2012 and 2015. The CMA has also decided to go forward with its proposals for a price cap for pre-payment customers (who tend to be more vulnerable) to all big and small suppliers which is a watering down of the original idea for a cap on conventional meters. As expected from CMA’s provisional findings, Ofgem is advised to lift the four tariff rule; this will allow suppliers to display all their tariffs on utility switching websites, not only those that they are paid to promote. As an attempt to boost consumer choice, the regulator is also being asked to end the ban on certain discounts and bundled products. On the other hand, suppliers are advised to make all their single-rate tariffs available to domestic customers on any type of restricted meter.
Making the case for switching
In order to encourage better switching, the competition watchdog is pushing for the creation of a database of disengaged customers and microbusinesses which have stayed with the same supplier for three or more years. The remedy, previously stated in the CMA’s provisional findings, will be managed and controlled by Ofgem and operated on an ‘opt-out’ basis. Consumers and microbusinesses which would be included in the database will be contacted to receive better value offers and will be able to opt out at any time.
Good news for microbusinesses
Another proposal widely supported by the industry, benefiting microbusinesses, is the increase of the auto-roll over period. Businesses on a fixed contract would be able to provide notice of termination at any point in their contract. As announced in their provisional findings, microbusinesses will not need to pay termination fees which eliminates barriers to customers and facilitates switching between suppliers.
As of the remedies relating to the wholesale market, the CMA has decided to go forward and introduce impact assessments and reviews of appropriate technologies when allocating budget in future Contracts for Difference (CfD) auctions. Additionally, as previously proposed, National Grid is advised to calculate imbalance charges taking into account transmission losses on a locational basis. The CMA considers that consumers would not be affected by the changes as costs are borne by the wholesale market.
Impact on TPIs
The CMA has also put together proposals which will affect Third Party Intermediaries (TPIs) and price comparison websites (PCW). The competition watchdog will grant access to electricity (ECOES) and gas (SCOGES) metering databases as well as the ‘disengaged customers’ database. Additionally, in order to build trust and increase transparency in the market CMA has decided to ensure price comparison websites, accredited under Ofgem’s Confidence Code, state the market coverage they provide to their customers. It is hoped that the remedy will allow TPIs to promote greater customer engagement.
The CMA final decision and the proposed remedies reflect the changing landscape of the UK energy market since June 2014. From the start of this year alone nearly 2 million gas and electricity customers have switched and majority of those (52%) moved to independent suppliers. Government proposals have helped to increase the number and market share of those suppliers, limiting the power of the Big Six to about 85% of the residential market. While distrust in the market is likely to remain, there are a number of changes which allow market participants to provide better value to consumers.
Following the CMA’s recommendations all affected industry participants would need to consult on how to effectively implement those changes in the following months.
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