The UK's Competitions and Markets Authority has concluded its energy market investigation and has published its report* setting out a wide range of reforms intended to modernise the market for the benefit of customers.
The UK’s Competitions and Markets Authority has concluded its energy market investigation and has published its report* setting out a wide range of reforms intended to modernise the market for the benefit of customers.
Over 30 measures will be brought in as a result of what has been the most comprehensive investigation into the energy market since privatisation. These are intended to drive down costs by increasing competition between suppliers and helping more customers switch to better deals, whilst protecting those less able to benefit from competition. They will also bring in technical and regulatory changes to modernise the market and ensure it works in consumers’ interests.
The investigation has found that 70% of domestic customers of the 6 largest energy firms are still on an expensive ‘default’ standard variable tariff. As these customers could potentially save over £300 by switching to a cheaper deal, the Competition and Markets Authority (CMA) will be enabling more of them to take advantage. The CMA has found that customers have been paying £1.4 billion a year more than they would in a fully competitive market.
Suppliers will be ordered to give the regulator Ofgem details of all customers who have been on their default tariff for more than 3 years, which will be put on a secure database to allow rival suppliers to contact customers by letter and offer cheaper and easy-to-access deals based on their actual energy usage. Ofgem will control access to the database and carry out testing on the frequency and form of communications, to ensure it is effective in helping customers move on to better deals. Customers can opt out at any time if they wish.
The options to switch are far more limited for the 4 million households on prepayment meters. For these customers, a transitional price cap will be introduced which will reduce bills by around £300 million a year. The cheapest tariffs for such customers are currently £260 to £320 a year more expensive than those available for direct debit customers. The price cap will remain in place until the introduction of smart meters removes the limitations on such customers accessing better deals.
The CMA is also introducing a range of measures to revitalise competition and reduce the costs borne by customers. These include pressing ahead with reforming outdated systems for measuring and charging energy that distort competition between suppliers, reducing the costs of transmitting electricity and using competition to help ensure that financial support for low carbon generation is allocated at the lowest cost to customers. Price comparison websites (PCWs) will also be enabled to play a more active role in helping customers find the best offers for them and given access to meter data which will enable customers to search instantly for deals.
The measures will also tackle specific issues faced by microbusinesses (those that employ fewer than 10 people) – 45% of which are on default tariffs. Suppliers will now be required to publish their prices for such customers and will no longer be able to lock them into expensive ‘rollover’ contracts.
Ofgem will also be given much greater influence over the detailed codes that govern the working of the market – and which currently give undue influence to established industry participants over decisions that affect competition and consumers – and more powers to enable it to scrutinise the performance of the market and suppliers as well as the impact of policy.
Roger Witcomb, chairman of the energy market investigation, said:
"Competition is working well for some customers in this market – but nowhere near enough of them. Our measures will help more customers get a better deal and put in place a modernised energy market equipped for the future.
With far too many customers paying hundreds of pounds more than they need to, they will be alerted to the better value deals that are out there and it will be easier for them to identify a good deal and switch to it. Those that can help with this process, like price comparison websites, will be given the ability to play a more active role. In other markets, they’ve played a big part in driving down prices, increasing switching and enabling suppliers of all sizes to reach customers and, freed up, they can do the same here.
"More active customers will not only save themselves money but keep suppliers on their toes, addressing many of the problems that we’ve identified. There are promising signs in this market with smaller suppliers getting more of a foothold and making it easier for customers to get involved will push things more quickly in the right direction.
"For those customers on prepayment meters, whose options to switch are far more limited, we’ll cap prices until the time that they too can benefit from competition.
"As well as helping customers switch, there are many other things that need to be done to make this market work better over the coming years and address all those elements that contribute to the final bill for customers. Modernising the market will equip it to meet future challenges and allow it to take full advantage of the forthcoming technological advances, such as smart meters, which have the potential to transform the way we use energy.
"As part of this, we’re going to strengthen the ability of Ofgem to push through change, to keep the market and suppliers under the microscope and to scrutinise government policies. With climate change and energy policies having an increasingly large effect on bills, it’s essential that decisions, particularly on support for new forms of generation, are made – and seen to be made – in the best interests of customers.
"We believe our measures alongside other future developments will mean energy customers see real improvements over the years ahead.
The changes will be accomplished via a combination of CMA Orders and recommendations to Ofgem and government and the CMA will shortly publish a timetable setting out this remedies implementation process. All information published in relation to the investigation is available on the CMA’s website investigation case page.
*The report itself can be downloaded from , https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/531157/Energy-final-report-summary.pdf.