Energy market competition – do the CMA’s proposed remedies go far enough?

The CMA has released its provisional decision on remedies in its energy market investigation. The CMA’s latest analysis has shown that the potential savings for customers switching has risen considerably over the last two years and that the average customer could save as much as £300 by switching. The CMA concludes that customers could have been paying as much as £1.7 billion a year more than they would in a competitive market.

The CMA’s proposals confirm that structural remedies (ie a break-up of the Big 6) are not being pursued as part of the CMA’s inquiry but include a range of measures aimed directly at customers to encourage them to switch and benefit from more competitive offers.  A particular innovation is a new Ofgem controlled database of customers who have been on a standard variable tariff for over three years which will allow rivals to target and market to those customers. However, this remedy has been criticised notably by new entrants who fear that the envisaged marketing of customers will only further alienate them from suppliers leading to mistrust at a time when it is important to restore customer confidence.

The CMA’s proposed remedies are extensive and also include measures to rebalance the relationship between Ofgem, DECC and the industry.  The aim behind these reforms is that decisions are made efficiently, on the basis of readily available accurate information and taking account of consumer impacts.  The largest suppliers will be required to provide fuller information on their financial performance. 

The CMA is also proposing changes to industry codes to put Ofgem in a better position to ensure that measures that benefit consumers are introduced promptly.

As suggested in the CMA’s provisional findings, it is also proposing a temporary price control to protect customers on prepayment meters who are considered more vulnerable.  Although the controls are designed to be temporary measures and more targeted than the pledges by Labour in 2013 to freeze energy prices this may be considered something of a step change in terms of the type of intervention.  Retail energy price controls are normal in almost half of the EU Member States yet Ofgem advocates that competition is the best way to deliver benefits to consumers. One dissenting member, Martin Cave did not consider that the reform package went far enough given the level of detriment identified. In his view a short term price cap covering substantially more customers was needed.

The CMA has clearly signalled a return to more direct ex ante regulation in the form of price controls.  If the CMA’s reforms do not achieve their desired effect, this may pave the way for tougher regulation in the form of price caps in the coming years.

The CMA is subject to a statutory deadline to publish its final report by 25 June 2016.

References:

Summary of provisional decision on remedies, 10 March 2016

Summary of AECs and remedies 10 March 2016

Press release: CMA sets out energy market changes, 10 March 2016