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UTILITY Week 6th June

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utILItY WeeK | 6th - 12th June 2014 | 17 Policy & Regulation First Utility used the consultation response as an opportunity to call for a "pro- hibition on self-supply" and said the CMA needed to address "structural issues that currently distort competition". Chief financial officer Darren Braham said the vertically integrated companies were structured in such a way that it was more important for them to maintain their market share, rather than compete for new custom. This then made it harder for smaller suppliers to gain fair and equal access to the wholesale market, and therefore offer cheaper deals. Essentially, it was a call of being bullied by the big boys. Lines of attack Away from the accusation of picking on the little guys, the bigger players actually come to the defence of the small suppliers – high- lighting the barriers to entry needed to be assessed. The major companies, in particular SSE and EDF Energy, stated that the stringent regulation and collateral costs needed to establish an energy supply business could act as a barrier to new entrants, but that they were essential "to protect the interests of consumers" – essentially they act as a fit for purpose test. The flip-side is that these costs and bur- densome regulations that have to be adhered to put off new entrants and price them out of the market, even before they enter it. The waiting game of the phony war has now begun, as Ofgem deciphers the responses and pulls together the final line of attack for the CMA to take. In the mean- time, sparks have already started to fly, with those in the CMA crosshairs already turning on each other (see box). With the suppli- ers bickering and turning on each other, as well as the regulator, the need to "draw a line" under all the issues of mistrust is para- mount, especially with consumer trust con- tinuing to fall to new lows. But for now we must wait for Ofgem's final battle plan for the CMA to take on the energy market. Key claSheS centrica vs SSe Centrica: Does "ownership of networks by energy suppliers result in any distortion of competition"? SSE: Networks are "already subject to robust and challenging economic price regulation" eon vs eDf energy Eon: Problems with internal trading and cross-subsidy "may be more pronounced due to the concentration of ownership of nuclear generation" EDF Energy: There are "benefits attributable to generation-supply business models" eon vs centrica Eon: "Horizontal integration [that is, boiler maintenance] may operate as a barrier to switching" Centrica: British Gas offers boiler installation, servicing, repair and replacement services rWe and eon vs Ofgem RWE: The volume and impact of new regulation "may have been to the detriment of other change in customer service" Eon: The complex regulatory system "has consumed a significant proportion of our business's capability to cope with change" Ofgem: "We work in the interests of consumers" first Utility vs the big six First Utility: "Prohibition on self-supply would neutralise the competitive distortions caused by the big six's vertical integration" The big six: The market "is competitive" citizens advice vs energy UK Citizens Advice: "Switching rates are declining" Energy UK: "There has been a sustained upward trend in recent months" Where they StanD Centrica – Look at networks; retail competition is "delivering value for customers" SSE – Don't look at networks; the market is changing for the better already RWE – The retail market has "solid foundations"; we've already separated supply and generation; excessive regulation affects customer service EDF Energy – Incumbency has both advantages and disadvantages (or "responsibilities" – such as bad debt); look at profits in relation to risk; we're not like the others ("lower price rise in November 2013") Eon – Strong wholesale and supply competition; horizontal integration (that is, boiler servicing) may limit switching; vertical integration has "real benefits", but undermined by internal trading and cross-subsidy First Utility – The big six are blocking us out and hurting competition; a distorted market means consumers pay more; switching needs to be easier Citizens Advice – A lack of competition is making consumers pay more; public trust remains low; we need answers to the "deep-seated problems" Energy UK – The market works for consumers and is competitive – the CMA will prove this

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