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UTILITY WEEK | 17TH - 23RD APRIL 2015 | 21 Finance & Investment Analysis T he big six have almost unanimously slammed the Competition and Markets Authority's initial findings that competi- tion in the retail energy market is not working. In their final written submissions before the CMA's summer findings report, the suppli- ers agree with the CMA's clean bill of health for wholesale markets, vertical integration and its focus on innovation-stifling regulation. But the big six have hit back at sugges- tions that they profiteer at the expense of disengaged customers, denying they rake in higher profits from their standard variable tariffs (SVTs). Centrica Centrica said its experience "does not support the CMA's initial views", saying customers are adequately engaged in the market and satis- fied with their supplier. It said its profit mar- gins have not risen dramatically since 2009, and do not skew profitability towards SVTs. – "The CMA's own survey confirms that 89 per cent of customers know they can switch supplier and nearly half of all customers have either switched or considered switching in the past three years." – "73 per cent of customers are satisfied with their current supplier and of those who know it is possible to switch supplier or change pay- ment method, 70 per cent are confident that they are on the right deal for them." – "Using our own actual costs, our margins are relatively stable from 2009 to now. Our average profit on a dual fuel bill has actually fallen from £54 (2009) to £42 (2014)." – "The differential between fixed term con- tracts and SVTs seen today is a result of the pattern of wholesale prices and how they flow through into the distinctly different risk offer- ings of the products. This differential has been significantly amplified by the fall in wholesale prices over the last year." SSE SSE echoed Centrica's claim that customers are engaged and that the process of switch- ing is not considered "onerous". Further- more, the savings customers can make by switching have been overplayed, SSE said. – "Almost 90 per cent of SSE's current elec- tricity customers have meaningfully engaged… in the last 10 years." – "Competition in the non-domestic segment is fierce, with 33 active electricity suppliers and 35 active gas suppliers. SME and micro- business customers face no material barriers to engaging in the market, as evidenced by the high rates of switching." – "The CMA's survey indicates that 67 per cent of customers who have switched previously are likely to switch again, suggesting that switch- ing is not onerous or off-putting. Market devel- opments… are making switching even easier." – "The gains from external switching are some- where closer to £39 to £130 (for median fuel customers) and the gains from changing both supplier and tariff type lie somewhere around £76 to £117 (for median dual fuel customers)." Scottish Power Scottish Power said its customers are "inter- mittently engaged" but any signs of consumer inactivity should be "seen in perspective". It also suggested the return of doorstep sales. – "In [our] SVT customer base, around half of those paying by credit or direct debit have been on a product within the last two years. We would therefore characterise much of the SVT population as intermittently engaged." – "It would be useful for the CMA to consider whether the use of face-to-face sales techniques could play a role in enhancing competition for consumers who are currently hard to reach via online or telephone sales channels, while ensuring appropriate consumer protection." EDF Energy EDF Energy bucked the trend by admitting that disengaged customers affect the competi- tion of the market. But it insisted that its SVT and fixed rate deals do not play to different strategies. The supplier also criticised Ofgem's "misleading" supply market indicator. – "The fact that there is a reasonably large cohort of inactive (disengaged) customers, corresponding, to a greater or lesser extent, to customers on SVTs in certain geographic areas (for a given supplier) or for a particular fuel, impacts on the competitive dynamic." – "EDF Energy does not have a retail strategy with respect to SVTs that is independent and/ or divorced from its fixed-rate strategy; rather, the two are interwoven." – "We have significant misgivings around Ofgem's introduction of the Supply Market Indicator… it has been consistently inaccu- rate, in particular by overstating revenues and therefore giving a misleading impression of supplier profitability." Eon Eon disputed the CMA's "rocket and feather" concerns in the pricing of retail energy. It also challenged the idea that consumers on a SVT are not engaged. But it did admit that com- petition has been stifled by over-regulation. – "Eon does not generally consider that prices respond more quickly to increases in wholesale costs than to reductions… In our experience, being the first supplier to respond to rising costs and increase prices carries a heavy price in terms of customer response and losses, and criticism by the media and other stakeholders." – "Just because a customer is on an SVT, it does not mean either that they are not engaged or that they are not active." – "The layering of regulation upon regulation impacts competition and stifles innovation." RWE Npower Npower defended the discounted rates offered through its fixed deal as compared to its SVT, saying that price can only be offered if customers commit to a "sufficient" period of time. While the supplier agreed that reduc- ing the number of codes may help, political intervention is also driving inefficiency. – "Competition drives [us] to offer discounts to acquire and retain customers and these dis- counts can only be offered if a sufficient num- ber of customers stay with [us] for a sufficient period of time." – "Some of the retail codes could be made simpler, but only if there were changes to the underlying drivers of complexity. These drivers include the significant levels of political and regulatory intervention in retail arrangements, which in RWE's view has at times led to ineffi- cient and unnecessarily complex outcomes." Big six suppliers hit back In their final written submissions before the CMA's summer findings report, the big six energy suppliers deny suggestions that they profiteer from disengaged customers, says Jillian Ambrose.