Utility Week

Utility Week 28th February 2014

Utility Week - authoritative, impartial and essential reading for senior people within utilities, regulators and government

Issue link: https://fhpublishing.uberflip.com/i/266932

Contents of this Issue


Page 5 of 31

need a two-year investigation to identify a glaring ex-monopoly advantage like that. In any case, at Ovo Energy we believe it's primarily the job of Ofgem and the Depart- ment for Energy and Climate Change to remove barriers to competition and give con- sumers a fairer deal. Plenty could be done now, without a further two-year delay. Looking back over the past few years brings to mind the old saying that the defi- nition of madness is doing the same thing over and over again and expecting a different result. In 2008, one year before we founded Ovo, the Conservatives were up in arms about Ofgem's record on standing up to the big six and were calling for a Competition Commis- sion inquiry. In their 2010 manifesto, they pledged to take competition and consumer protection out of Ofgem's hands and give it to the Office of Fair Trading, leaving Ofgem to focus on delivering energy policy and maintaining capacity. Aer the election, the govern- ment opted to give the regulator one more chance to show its teeth through a "comprehensive review" of the retail market. When this resulted in little material progress beyond some tinkering around the edges and a promise to look at the problem again in 2017, the prime minister took matters into his own hands, announcing that suppliers would be forced to put all customers on the cheapest tariff. Ofgem's announcement, days later, of plans to force suppliers to tell all customers about their cheapest tariff didn't quite pack quite the punch the PM might have hoped for. With an election once again in sight, the government has instructed Ofgem to run an "audit of competition" in the retail market, this time tasking the Office of Fair Trading and the Competition and Markets Authority to supervise the energy regulator. Adding final insult to injury, Ed Davey has now writ- ten publicly to Ofgem, helpfully suggesting the conclusions he thinks they should "feel comfortable" reaching. 6 | 28th February - 6th March 2014 | utILIty WeeK Comment W ith the results of the government's first "competition assessment" due out shortly, the possibility of a Competition Commission inquiry into the energy market is once again a topic of hot debate across the industry. With all the com- motion, it's sometimes easy to forget that this is a very old idea. In fact, politicians of all colours started sabre rattling about an inquiry as far back as six years ago. But the threat keeps reoccurring because, despite all the talk about reforming energy around a simpler, fairer, cheaper model, the problems of today's retail market struc- ture aren't going away. Consumers are also becoming less and less willing to tolerate the status quo. True, switching rates briefly increased in the wake of last winter's furore over energy bills, but this is a poor indica- tor of whether real competition exists. In the main, customers who are switching aren't doing so because there's real competition, they're switching because – even in a mar- ket as inelastic as electricity supply – levels of dissatisfaction are nearing breaking point. My instinct is that a Competition Com- mission inquiry wouldn't shed much new light on the situation. Whether or not evi- dence was uncovered of dirty dealing by the big six, the likelihood is that the commis- sion will conclude the current market struc- ture doesn't promote competition or new entrants, doesn't encourage efficiency and innovation, and ultimately doesn't serve the interests of UK energy consumers. This con- clusion should be fairly obvious in any mar- ket where the six largest incumbents are all ex-monopoly, holding between them a 97 per cent market share. I'm not sure the public needs to wait two years to hear it officially from the Competition Commission. Overlaid on all this, even a cursory exami- nation of the customer distribution of the six largest electricity suppliers shows clearly that their market shares are much higher in their pre-privatisation regional bases than they are nationally. These are the big six's inherited customers and it's these long term, non-switching consumers that tend to get charged disproportionately more. We don't Time to start moving forward The government's 'competition assessment' must not become just another two-year delay to avoid tackling the manifest problems of the energy industry and its regulator. Chief executive's view Stephen Fitzpatrick, founder, Ovo Energy Coming full circle, Labour's position in opposition now closely mirrors that of the Conservatives back in 2010: Ofgem has failed to protect the interests of consumers, so the consumer protection role should be sepa- rated from the job of safeguarding capacity and the two should be given to two different agencies. Incidentally Labour believes that Ofgem is not competent to handle either of these responsibilities – they would be for the chop under a Miliband government. It might be stating the obvious, but instead of the simple, impactful solu- tions Ofgem could be putting in place today, the whole situation has instead become wildly over- politicised. We are no longer deal- ing with policies; we are dealing with slogans, pledges and head- lines. While this may always be the case with energy to some extent, it is simply too important a commod- ity for this to become the ongoing status quo. People are struggling to pay their bills and there is a real possibility that the lights might go out. Another review, or re-creating the same regulator by another name, just isn't going to cut it this time. Ofgem must get tough and really use some of the powers it already holds (unlimited fines and an end to predatory pricing would be a good start) and the government must take an honest look at what Ofgem should be empowered and encouraged to do. If the energy regulator had a mandate, as Ofcom does, to ensure regional plurality, this could help millions of inherited customers who are currently over-paying for energy because of where they live. If Ofgem had a mandate to reduce the market share of the ex-monopoly incumbents, we might start to see a flood of new entrants into the market. More players means more efficiency, better service and ultimately it's the best way to lower bills. It's going to take a long time to get there, but let's start moving forward instead of going around in political circles. "Ofgem must get tough and really use some of the powers it already holds"

Articles in this issue

Archives of this issue

view archives of Utility Week - Utility Week 28th February 2014