Utility Week

12 | 28TH JUNE - 4TH JULY 2019 | UTILITY WEEK Policy & Regulation Analysis F or the first time ever Ofgem has fined two energy suppliers for breaching competition law, a move that shows the it does have clout and will use it. The regulator sent out a "strong signal" to the industry when it fined E (Gas and Elec- tricity) and failed supplier Economy Energy, together with consultancy firm Dyball Associates, £870,000 collectively for anti- competitive behaviour. The two energy suppliers have more than 500,000 customers between them, most of them on prepayment meters. As such, they are considered vulnerable and therefore less likely to switch, and the two companies were found to have colluded to avoid competing for each other's customers. The suppliers argued that they were a combined family enterprise, a defence rejected by Ofgem. But could such a case be the first of many? Regulatory competition expert Colm Gibson suggests that while existing rules make it harder for companies to breach competition law, they do not prevent them from doing so. The managing director of Berkeley Research Group's European economic regu- lation practice tells Utility Week: "There are rules in place that make it harder but there aren't rules in place that stop it. The stopping it relies on an incentive regime and the fear of getting caught, getting penalised and get- ting embarrassed out of business. "One of the reasons I am sure Ofgem is doing this is to send a strong signal that it is not frightened of taking companies to task." Gibson, who has more than 30 years' experience in energy and regulated indus- tries, adds: "My experience of regulation is that once regulators have pushed a certain button and taken a certain action, they are actually more likely to pursue those cases in future. They feel a bit more bullish, a bit more confident. "In marginal cases, Ofgem faces a decision about whether to settle with a voluntary pen- alty and a slap on the wrist or go all the way through the process. My guess is that balance has now tipped and Ofgem is going to be a bit tougher in those marginal cases." Citizens Advice chief executive Gillian Guy has similar concerns about market rules, in that companies shown by the regulator to be breaking the law were able to enter the market in the first place. Caught in collusion All three parties in this case were found to have infringed Chapter I of the Competition Act 1998 because Economy Energy and E (Gas and Electricity) had agreed not to target one another's customers through face-to- face sales. The consultancy firm aided this by design- ing, implementing and maintaining so–ware systems that allowed customer meter point details to be shared, and recruitment of each other's customers to be blocked. Citizens Advice has known "for some time" that suppliers who were "unprepared and unsustainable" have been able to get into the energy market, says Guy. While this is not the first time a company has been suspected of being in breach, it is the first time such a penalty has been levied, and it shows the full extent of the regulatory powers at Ofgem's disposal. Tim Speed, associate partner at law firm Shakespeare Martineau, says Ofgem has lain down a "marker" for the standards it expects from the energy supply market. "The latest finding should not be consid- ered in isolation, but as part of Ofgem's over- all strategy to ensure there is what it considers to be 'healthy competition' in the market. "The message Ofgem has sent out over the past 18 months is that it is closely moni- toring the activities of all suppliers and will do what is necessary to promote competition and improve customer service. This should deter suppliers from entering into agree- ments that are anti-competitive." Speed further argues that other suppli- ers with arrangements in place potentially undermining competition will need to "seri- ously consider" their own position. Following the ruling, Anthony Pygram, director of conduct and enforcement at Ofgem, said the enforcement action sends a "strong signal" that Ofgem will take action and penalise those who undermine competi- tion and do not act fairly. "Anti-competitive agreements are a seri- ous breach of competition law and could cause widespread det- riment and harm to consumers, especially those in vulnerable situations," he said. Citizens Advice's Guy says: "It's especially troubling that the people affected were most likely prepayment meter customers, who are more likely to be vulnerable or be on low incomes and less likely to switch. "Ofgem has taken steps to tighten the rules around who can get into the market, including a fit and proper person test. But this case shows a clear need for stronger rules on supplier conduct and close scrutiny of the management of firms." In terms of "stronger rules", Citizens Advice says it specifically wants to see the introduction of an ongoing fit and proper requirement, to match the new entry tests, the introduction of rules requiring stronger governance such as having a named person responsible for compliance and require- ments for independent audit. Committed to doing better In the past, Ofgem has accepted "commit- ments" from suppliers suspected of unfair Ofgem gets tough over competition breaches Ofgem has shown it isn't afraid to penalise energy suppliers for being in breach of the Competition Act. Adam John asks if this could be the first of many similar cases. "Once regulators have pushed a certain button and taken a certain action, they are actually more likely to pursue those cases in future." COLM GIBSON, BERKELEY RESEARCH GROUP

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