Tuesday, 7 July 2015

Fwd: CMA sets out case for energy market reform

Dear Mr Jones, The Competition and Markets Authority (CMA) has today published its provisional findings after a comprehensive year-long investigation into the energy market.

In a summary of provisional findings published today, we have highlighted a range of problems hindering competition in the market, including the extent to which consumers are engaged in the market and shortcomings in regulation and the ability to deliver change across the market. We also point to the need for a coherent and transparent approach to responsibilities and policy implementation by those overseeing the industry.
In addition to the provisional findings we have set out an initial list of possible measures which could increase competition and ensure a better deal for customers.

The average household currently spends about £1200 on energy each year. For the poorest 10% of households, energy bills now account for about 10% of total expenditure. However widespread consumer disengagement is impeding the proper functioning of the market. An extensive survey of 7000 people in Great Britain found that over 34% of respondents had never considering switching provider.

As a result, the report has found that dual fuel customers could save an average of £160 a year by switching to a cheaper deal. About 70% of customers are currently on the 'default' standard variable tariff (SVT) despite the presence of generally cheaper fixed rate deals. Lack of awareness of what deals are available, confusing and inaccurate bills and the real and perceived difficulties of changing suppliers all deter switching – and the higher price levels reflect that suppliers can charge higher prices to these disengaged customers.

Regulatory interventions designed to simplify prices, such as the 'four-tariff rule', are not having the desired effect of increasing engagement, have limited discounting and reduced competition. Instead the CMA proposes that the regulatory approach to the retail market should be based on clear principles that allow the benefits of competition to be gained and promote measures, such as smart meters, that will increase engagement, while specifically targeting disengaged consumers to prompt them to shop around.

Alongside this, the CMA will also be considering whether safeguards such as a transitional price cap on the most expensive tariffs are needed to protect customers until other measures have led to a more competitive market.

We will now consult and hold detailed discussions with all interested parties on the findings and possible remedies as we move to publish our final report by the end of the year. Before then we will also publish a provisional decision on remedies where we will indicate the measures and actions we intend to include in that final report. Submissions in response to the provisional findings and notice of possible remedies are invited in writing by 31 July 2015.

Details of how to submit views and other information are available in our press notice and on the case page. You can also follow this and other stories via our Twitter page.

Best wishes,

Gill

Gill Street | External Relations | Competition and Markets Authority
Victoria House | Southampton Row | London WC1B 4AD |