The CMA, energy bills and how the Big Six got off scot-free

We read the Competition and Markets Authority (CMA) investigation into Energy Markets report – with keen interest. We were anticipating something which would highlight the impacts of energy company monopolies, address unfairness for standard variable and pre-payment customers and suggest some useful remedies. What we got was this…

The CMA report effectively blames the 70% of energy customers sitting on expensive standard variable tariffs for being overcharged – because they have failed to switch. They think, despite all the national switching campaigns that have gone before, that more marketing and advertising should be the solution to a problem caused by up to 20% price differentiation between effectively identical products.

We don’t dispute that switching is an approach that works for individuals in the short term – you can find one-year fixed deals which are a lot cheaper than standard tariffs (and we can help you do this). But is it really the best the CMA can do to propose relying on customers (70% of customers!) to sort out the problem?

The CMA report fails to explore any robust approaches to making standard variable tariffs fairer, more competitive, ‘standard’ or indeed ‘variable’. As Dieter Helm points out;
In a well functioning competitive market, suppliers would compete to offer Standard Variable Tariffs. They would be “standard” because the product is homogenous. They would be variable (with lags of course) because costs vary. The CMA identifies the ‘striking’ difference between the prices that different customers pay for an almost entirely homogenous product – over 20% – but instead of framing this as market or regulatory failure – it proposes that customers should be further encouraged to fix this by switching. They note that firms are earning an average 11% more revenue from standard variable customers than from those on other tariffs – but (inexplicably) think that individuals ought to sort this out for themselves.

The CMA’s finding and recommendations become even more perplexing when they correctly identify that those on low incomes, with low qualifications, living in rented accommodation or who are above 65 are typically paying more for energy due to being more likely to be on standard variable tariffs. The CMA quickly start referring to these customer groups as ‘disengaged’ and thus are able to set out their proposal for solving the problem through a programme of ‘engagement’…

So what do they propose? Wait for it… The CMA intend to circulate the personal details of everyone on a standard variable tariff to other energy companies, so that they can be sent direct marketing with details of cheaper offers. That’s it.

There are many reasons why this response is lacking. We summarise a few here (thanks to Dieter Helm’s analysis http://www.dieterhelm.co.uk/energy/energy/flawed-in-almost-all-its-parts-the-final-cma-report/):

1. Wholesale market prices have fallen 30% over the last 3 years and standard variable tariffs barely reflect this. How will more marketing effectively address this disparity?

2. Energy wholesale prices are becoming increasing fixed as more and more generation is contracted (FiTs and capacity contracts) at a set price per unit by government. This means there will be increasingly less difference between the cost of wholesale energy and thus less reason for difference in consumer pricing.

3. How many people read unsolicited mail from companies trying to sell them products? Aren’t we already bombarded with marketing – why will this be any different?

4. This proposal identifies that low income and vulnerable households pay more, but fails to come up with a proposal which will really respond to this aspect of the problem.

On a different, but related matter, if you think that Ofgem should use their powers to stop the unfair treatment of vulnerable energy customers by suppliers – so do we, and we’ve started a petition about it: https://www.change.org/p/ofgem-the-government-s-energy-regulator-stop-energy-suppliers-from-forcing-vulnerable-customers-into-debt

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One thought on “The CMA, energy bills and how the Big Six got off scot-free

  1. Pingback: The CMA, energy bills and how the Big Six got off scot-free — Energy Matters blog | power culture

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