Light Sentence for Britain's Big Six Retailers
There will be limited price-caps and no fundamental shake-up of Great Britain’s energy supply business, according to the Competition & Markets Authority (CMA) in a document published March 10. It has completed its investigation into allegations of market abuse with the publication of proposed remedies, which it will now consult on.
At the moment the market is dominated by the so-called Big Six, who between them account for 90% of the households, although in total there are now 30 suppliers, according to the energy regulator Ofgem.
They have been accused of passing on wholesale market price rises much faster than they pass on price cuts to the customer; and of announcing similar price cuts and rises within short periods of time. The Big Six also own generation assets, which they will be allowed to keep.
The biggest problem appears to be apathetic customers. In a survey it conducted during its investigation, the CMA found that 34% of its respondents – taken from a broad cross-section of the public – had never considered switching supplier. Competition in retail gas supply was first rolled out in 1995.
The CMA’s analysis shows that, in total, customers could have been paying progressively more in the past years than they would in a competitive market, with last year’s so-called ‘customer detriment’ rising to £2.5bn. With 28mn electricity customer accounts, of whom 21mn may also have gas accounts, that implies an average account 'detriment' of £90/year which helps explain the apathy.
Having a certain number of these inert customers allows retailers to offer more competitively priced supplies to those who are more active. But the CMA is proposing that Ofgem manage a database of customers who remain aloof from switching supplier: around 70% of the domestic customers of the Big Six are still on the more expensive ‘default’ standard variable tariff (SVT).
The database will allow rival suppliers to target their marketing to those customers who have been on that tariff for three years, with safeguards in place to prevent misleading advertising.
The CMA is also proposing a price control to protect customers on prepayment meters, which would reduce their bills by a total of £300mn/year. That will expire by 2020.
But the CMA panel member who advocated resetting the market by means of price controls for those on SVT, which he said would benefit more people faster than many of the proposals, was in a minority of one.
The CMA is also proposing extensive measures to clarify the independence of the regulator from government.
Some of the measures will require legislation, such as the proposal to oblige the largest suppliers to provide fuller information on their financial performance, and increased public consultation by Department of Energy & Climate Change on policy decisions being taken that will be a major driver of consumer prices in the future.
Energy and climate policies are expected to make up 37% of the household cost of electricity by 2020, which shows the impact that policy and regulatory decisions can have on bills.
The chairman of the energy market investigation Roger Witcomb said that “in those parts of the retail markets where competition is working, customers are benefiting to the tune of hundreds of pounds a year by switching. We’re proposing a wide range of bold, innovative measures to enable competition to grow further across the market so that millions more households will benefit.”
Ofgem boss Dermot Nolan said the “CMA package of remedies, combined with smart meters and faster switching, should clear the way to secure a new and better deal for consumers. We will now work closely with the CMA on how these proposed remedies should be implemented to ensure that consumers get the full benefits.”
Reacting to the announcement, Centrica said the UK market is already very competitive, and if they are implemented thoughtfully, the majority of the CMA’s proposed remedies should further enhance competition and benefit its customers. But it added: "We continue to disagree with the CMA’s findings that customers historically could have been overpaying by about £1.7bn/year."
Since 2010, Ofgem has imposed fines of £200mn on energy retailers for poor customer service. Until last year it published a quarterly ‘supply margin indicator’, which shows the notional profits and losses to be made from procuring energy on the wholesale markets and selling it in the retail sector. It says it may revive this. The CMA also proposed that Ofgem publish an annual ‘state of the market’ report.
The Big Six are owned by: Centrica, EDF, EON, RWE, Scottish & Southern Energy and ScottishPower.