Today, the Competition and Markets Authority had its final word on the energy market after a two-year-long investigation into lack of competition from suppliers and poor engagement from consumers.
Having already released its provisional remedies back in March, today’s information was not new, but marks the matter as closed — and it is now up to the industry to move ahead with these proposals.
What are the CMA’s proposed remedies?
The package of remedies published today number more than 30 measures intended to push down costs and increase competition. The highlights include:
Database of non-switchers
The CMA’s initial findings included that customers were being punished for being loyal, as they were paying £234 more than if they switched.
Suppliers will now be required to provide to Ofgem a list of their customers who have been on a standard tariff for more than three years. This list will be accessible to energy suppliers, who can then contact them via letter to offer cheaper deals. (Customers can opt out of being on this list.)
Price cap for prepayment meter customers
With four million households on prepayment meters — many due to energy debt — ensuring these customers have access to cheap plans and more options is key. However, prepayment customers are paying up to £320 more per year than direct debit customers.
A temporary price cap will be introduced to reduce prepayment bills by £300 million per year for these customers.
To read the full list of remedies, head to the gov.uk website.
What does uSwitch have to say about the reforms?
Richard Neudegg, Head of Regulation at uSwitch.com, said in a statement released today:
“The CMA’s package of remedies should help more consumers engage in the energy market, boost competition and reduce bills. It’s taken two years to get here, so it’s vital that no time is wasted putting these remedies into action. Customers shouldn’t have to endure another winter of rationing their heating just to make ends meet.
“Ofgem recently started to relax some tariff restrictions and, as a result, we have already started to see the launch of exclusive, market-leading and innovative energy deals – the initial green shoots of what the CMA is aiming for.
“Today’s package of measures, when fully implemented, should see even more competitive tariffs and improved choice for consumers in future.
“The introduction of a temporary prepayment safeguard price control will help some of the most vulnerable, but a well functioning, competitive prepayment market should be the ultimate aim. Many low income families, elderly and disabled people pay for their energy by other methods, however, and so the Government must increase funding for the Warm Home Discount scheme, and extend it to include all energy suppliers, to help more of those in need.
“We believe the CMA’s proposed database of disengaged customers is well intentioned but it must not be allowed to lead to consumers being inundated with unsolicited marketing material from multiple suppliers. We urge Ofgem to properly trial and test the content and frequency of marketing communication and ensure that strong data protections are in place.
“The impact of the final remedies on prices, engagement and market competition must be properly evaluated as they’re implemented. Switching rates – one strong indicator of competition – are rising but are almost half the levels seen in 2008. An ambitious, but achievable, switching target of 25% by 2020 should be set between suppliers, alongside targets for customers changing to better tariffs with their current supplier. This will help ensure the final remedies lead to a better energy market for consumers.”
A timeline of the CMA energy market investigation
July 2014 – The Competition and Markets Authority highlights the issues with the energy market ahead of the launch of the investigation. These issues included:
- Big six domination
- Lack of competition and consumer engagement
- Concerns around transparency regarding wholesale pricing
At this time, the idea of breaking up the big six was introduced.
February 2015 – The CMA released its first update since the launch, highlighting concerns including that millions of customers are punished for being loyal, and are overpaying by up to £234 per year instead of switching to a cheaper energy deal.
Energy Minister at the time, Ed Davey, said he would not hesitate to break up the big six if the CMA’s final report recommends the action.
July 2015 – The CMA releases a summary of its provisional findings from its investigation, including that suppliers had overcharged their customers to the tune of £1.2 billion, as well as a list of possible measures to remedy the market.
The CMA noted that suppliers weren’t the only ones to blame; consumer apathy toward their energy bills meant that they were missing out on some of the cheapest energy deals in five years.
At this time, remedies being considered included:
- Lifting the four tariff cap introduced by Ofgem in 2013 in an effort to make the market simpler to navigate. However, the CMA had found that it had limited competition
- A price cap to effectively force suppliers to lower their prices
- Measures to clarify energy bills
January 2016 – The CMA announces that its provisional remedies report will be delayed.
March 2016 – The CMA publishes its proposed remedies to fix monopolisation of the energy market by suppliers, and lack of engagement from consumers:
- A database of disengaged customers
- A temporary price cap on prepayment meter tariffs
- Removal of four tariff cap
- Changes to what information is included on energy bills and annual statements
June 2016 – The final report from the Competition and Markets Authority is released. Effectively closing their investigation into the energy market.