CMA says UK energy market needs better regulation and more customer switching

The CMA’s updated issues statement on its energy market investigation has been hailed as a ‘win’ for the energy companies, while suggesting that a lack of competition could be due to poor regulation and customer apathy.  A closer look at the CMA’s initial findings suggests a more nuanced view. 

Overall, the ‘Big Six’ energy companies – Centrica, EDF, E.ON UK, Npower, Scottish Power and SSE – will breathe a sigh of relief at the CMA’s initial view that there is insufficient evidence on a number of allegedly anticompetitive practices. These include suggestions of excess profits and pricing in generation and wholesale gas supply and collusive behaviour in retail energy markets. The CMA has also moved away from attributing competition concerns to vertical integration.  In so doing it appears to be placing little emphasis on a possible break-up of the Big Six. 

In contrast, the CMA appears to be laying some of the responsibility for a lack of competition at Ofgem’s door.  The CMA has pointed to areas where it believes, on initial examination, that the regulatory framework could be a potential cause of market distortion and inefficiencies in wholesale electricity markets.  At this initial stage the CMA seems to be focusing more on retail markets where domestic consumers – and particularly those on standard variable tariffs– have little inclination to switch supplier.   

These initial findings seem to suggest that the CMA is heading towards the type of remedies which could include simplified tariffs.  In principle more reliable and transparent information would make it easier for customers to compare prices and switch.  Some might say that is not a particularly earth shattering finding, and that an information remedy is rather a damp squib after what is likely to be an 18 month inquiry. 

While the initial findings are useful in terms of isolating the CMA’s key concerns and thinking, I would sound a note of caution before concluding that more intrusive remedies are off the table.  It may also be speculated how its findings will be received after a General Election. The CMA’s inquiry is ostensibly independent of the political process.  But it cannot go unnoticed that the day the issues statement was released energy minister  Ed Davey said that the government would not flinch from taking touch action if the evidence supports a structural remedy.  It is probably best not to speculate at this stage.  The CMA invites comments on its updated issues statement by 18 March. 

CMA press release, Energy market investigation – updated issues statement, 18 February 2015