The Competition and Markets Authority has published the final report detailing its proposals to reform the energy market following a two year investigation.
The proposals include various measures designed to promote competition between energy providers, and to work against perceived systematic overcharging of customers.
Introducing the final report, the CMA said: “Over 30 measures will be brought in after the most comprehensive investigation into the energy market since privatisation.
These will 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.”
One flagship proposal includes the creation of a database containing the details of all customers who have been on any energy providers’ ‘standard tariffs’ (often the most expensive plans available) for more than three years. The details are to be provided by suppliers to Ofgem, and the database will be accessible to all energy providers, meaning that rival suppliers can contact the customers in question by letter to “offer cheaper and easy-to-access deals based on their actual energy usage.”
The CMA’s investigation found that around 70% of all domestic energy customers signed up to the ‘big six’ (British Gas, npower, E.On, EDF Energy, SSE and Scottish Power) were on standard tariffs and could be savings up to £300 a year by switching, something that this new database should facilitate.
The head of the energy inquiry, Roger Witcomb, 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.”
However, while the proposals are all designed to improve competition and help consumers, several analysts and spokespeople from smaller energy firms have criticised the CMA for not going far enough after harsh measures initially proposed against the ‘big six’ were rowed back from.
One claim in particular, which was made last year in an interim report for the investigation, was that the big six had overcharged customers a total of £1.7 billion a year between 2009 and 2013. Coupled with this claim was an initial proposal to implement a price cap on standard tariffs for customers who had not switched.
Both the proposal of a price cap and any mention of the £1.7 billion overcharging were ultimately removed from the final report, following immense pressure from the big six who, according to some sources, were considering taking legal action against the CMA in order to challenge the claim.
The final report instead said that “domestic customers as a whole paid an average of £1.4 billion a year more than they would have done under well-functioning retail markets over the period 2012 to 2015, reaching £2 billion 2015”.
The big six were not named directly in relation to his overspend, but were cited as being responsible for overcharging customers on prepayment meters.
The CMA did propose a price cap for customers on prepayment meters, but the only mention of a more widespread cap came in the description of one ‘dissenting view’ from panel member Martin Cave.
It said: “One panel member, Martin Cave, felt that the retail remedy package was unlikely to succeed in reducing, in a timely way, the significant level of detriment identified. In his current view, a short-term price cap, covering a substantially larger number of customers, is required to reset the market.”
The CMA also stopped short of one of the more drastic proposals being considered last year that would have seen the big six forcibly broken up.
The founder of the UK’s largest independent supplier, First Utility, criticised the CMA for rowing back on earlier claims, and for not going far enough in its proposals.
Darren Braham said: “The CMA has completely missed the mark, having spent two years debating how to fix the industry,” he said.
“Rather than acting quickly to make the market simpler and fairer for customers, the opposite has happened. With the remedies proposed, we are in real danger of being back where we started 10 years ago. This means a baffling array of tariffs, even more exploitation by the big six and customers continuing to pay much more than they need to.”
“We urge Ofgem and DECC to consider the timing and implementation of certain remedies to avoid a wild west, free-for-all energy market, which won’t operate in the best interests of the vast majority of consumers.”
A spokesperson for Centrica, British Gas’ parent company, praised the CMA’s finding. They said: “We have reviewed the executive summary of the final report and believe many of the remedies will further enhance the market and benefit customers.”
The Energy and Climate Change Committee, an advisory body, is set to meet later this week in order to discuss the results of the CMA’s investigation.
The chair of the committee, Angus MacNeil, said: “My main priority is making sure that any remedies proposed by the CMA and ultimately enacted by the government are in the best interests of consumers.
“I remain concerned that too many households – particularly those on big six suppliers’ standard variable tariffs – are paying more for their energy than they should.”
