The nearly two-year investigation into the energy market concluded in 2016 — find out how they've proposed to improve the energy market for consumers and what Ofgem are planning to do next
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Why did the CMA investigate the energy market?
The energy industry, and in particular the big six energy companies – British Gas, EDF Energy, E.ON, npower, ScottishPower and SSE – have long been accused of being quick to raise their prices if their costs go up, but not so quick to do the opposite.
These accusations, combined with the fact that roughly 95% of consumers are signed up to the big six, have led to many questioning the competitiveness of the gas and electricity industry.
In this context, the in-depth market investigation was launched in June 2014, in a bid to ensure competition amongst energy suppliers, as well as improve customer service and consumer trust levels.
The investigation was carried out by the Competition and Markets Authority (CMA) and lasted more than a year and a half.
What were they looking for?
In Ofgem’s words: "An investigation should ensure, once and for all, that competition works effectively for consumers, by bearing down on prices while driving improvements in customer service and innovation.
An initial assessment carried out by Ofgem in conjunction with the Office of Fair Trading (OFT) and the CMA found competition amongst energy suppliers was not as healthy as it should be, particularly between the big six.
Doubts were also raised about the fairness of the relationships between suppliers’ energy generating branches and their retail counterparts. The current structure enables energy providers to buy energy from themselves and then sell it on to consumers. This practice will be investigated as it could potentially distort market prices.
The CMA examined energy companies’ rising profit margins and lack of any evidence that they are cutting their own costs or improving their customer service.
What did they find and what were their proposals?
In July 2015, the CMA announced their findings, stating that energy suppliers overcharged their customers by an astounding £1.2 billion — and that they got away with it because they were operating in an uncompetitive market.
Several months after publishing their findings, the CMA made their proposals. These included:
Creating a database of disengaged customers This would include customers who had been on a standard variable rate tariff for three years or more. This data would be shared with other suppliers, who would be able to contact these customers to offer them cheaper deals.
A temporary price cap Called a "safeguard price control", this would be a temporary measure to ensure the most vulnerable energy customers — i.e., those on prepayment deals — would be protected against unnecessarily high prices until smart meters could be rolled out.
Removal of the four tariff cap This was found to have limited consumer choice.
Energy bill reform It was proposed that Ofgem lead a programme to trial changes to consumer energy bills, including how information is presented and what that info includes.
Switch energy provider Ultimately, the CMA found that the best course of action consumers could take to ensure competition in the market was to switch energy supplier.
In July 2017, Ofgem published its plans to deliver a fairer and more competitive market off the back of the CMA's findings and proposals.
The decision included:
- Capping how much a supplier can charge to install a prepayment meter at £1,500
- Considering a safeguard tariff for vulnerable customers, which would now include those eligible for Warm Home Discount
- Trialling a "deal checker" tool for consumers to check their plan against others in the market.
- Testing out a programme that involves Ofgem writing to customers to inform them of cheaper deals to prompt them to switch
Depending on what kind of energy customer you are, it may be some time before you see any major changes to your energy bills or service. However, it seems both the CMA and Ofgem agree that consumers should be comparing their energy deals often and switching to ensure they're not overpaying.
uSwitch are an Ofgem accredited energy switching site, that offer both online switching and a UK-based call centre service, available seven days a week on 0800 6888 244.