Utility Week

Utility Week 10 07 15

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

Issue link: https://fhpublishing.uberflip.com/i/538669

Contents of this Issue


Page 4 of 31

UTILITY WEEK | 10TH - 16TH JULY 2015 | 5 Special report The big six must use the CMA process for genuine reform. W hen, almost exactly a year ago, Ofgem referred the energy market to the newly estab- lished Competition and Markets Authority (CMA), the regulator described it as a chance to "clear the air" and to increase consumer confidence and understand- ing. Energy UK and many of its members – including those who had previously pushed for such an inquiry and others who had derided it – made similar noises. That so much of an industry sought refuge in the CMA's first really significant detailed market examination was indicative both of how far public trust in energy sup- pliers had declined, and just how frustrated the industry had become about trying to explain the complexities of their operations and prices. Aer 12 months – and with a further six to go before its final report – the CMA's interim report and indica- tive remedies contain no real surprises. The commentary on both the CfD allocation process and locational trans- mission costs will doubtless provoke debate. Vertical inte- gration escaping unscathed was widely expected and priced in by City analysts. On the retail market the stark, but unsurprising, conclusion that customers on standard variable tariffs have overpaid by around 5 per cent since 2009 confirms what many thought. Government and industry action on switch- ing, and providing information about better deals, has done little to engage those custom- ers who also tend to be those with the lowest disposable income – as many have noted. The proposal for a temporary price intervention while mar- ket changes are put in place also sounds familiar. What matters now is the approach of industry ahead of the final report. With the government having previously committed to implementing the CMA findings in full, con- sultation on the detail will be important. Just as significant will be the attitude of energy suppliers. All have recognised and sought to address the lack of customer trust, and some have taken steps beyond the CMA proposals to increase transparency between retail and generation arms. Being less defensive and more transparent gives an important opportunity to provide the fresh start and clear explanations called for 12 months ago. Hoping to return to busi- ness as usual won't work. While the fall in wholesale prices has resulted in less pub- lic attention, an unreformed market will see the same issues return with a vengeance when gas goes up again. Sandwiched between the Greek referendum result and George Osborne's first budget unencumbered by coalition politics, the CMA's report may be a one-day media event before the caravan of political debate trundles on. To mistake fleeting press attention for a lack of significance would be a miscalculation. For the big suppliers to fail to take the opportunity the CMA process offers would be a mistake. The proposed remedies in full: • It proposes a regulated backstop tariff for customers who failed to switch to better deals. This "transitional safeguard" tariff would be set by Ofgem or the CMA itself and is intended as a measure of last resort. Other remedies are proposed that would encourage customers to switch before being transferred on to this tariff. For example, a formal prompt to switch, and a range of measures to make switching easier. • The CMA suggests that Ofgem should host an independent price comparison website. This is intended to create greater confidence in price comparison websites, which the CMA sees as a means to promoting competition, and provide wary customers with an independent means of checking quotes they receive on those websites. • The CMA proposes to scrap the four-tariff rule of the Retail Market Review (RMR). It says the rule hampers innovation, which is critical to the market, and hopes that scrapping it will bring forward new tariffs and further encourage competition via price comparison websites. • The CMA proposes a range of measures to improve the "transparency and robustness" of Ofgem's regulation of the energy sector. These include clearer and comparable reporting by energy companies, so comparisons can be made on a like-for-like basis; a revision of the regulator's statutory duties with an emphasis on the duty to promote competition; and a transparent mechanism by which Decc and Ofgem can air disagreements, presumably intended to prevent Ofgem's hand being forced on policy- driven regulatory decisions. • Other recommendations cover variable transmission losses; the contracts for difference auction process; and measures to protect micro-businesses. The CMA has set out the remedies it is considering in its full report and invites comment before 31 July. Opinion Tom Greatrex, Former shadow energy minister 25 December 2015: Statutory deadline for the final report to be published 14 April 2015: Conservatives pledge to implement CMA recommendations 7 July 2015: CMA publishes provisional findings and possible remedies – including the possibility of partial tariff regulation 31 July 2015: Submissions in response to the provisional findings and notice of possible remedies are invited in writing We read the report, so you don't have to 10 March 2015: Labour vows to overrule the CMA's findings if elected ➡ Customers were central in the industry reaction to the CMA's report, with every supplier emphasising the need to make sure customers benefit from the CMA's recommendations. The CMA published around 20 proposed mar- ket reforms which broadly aim to boost competition within the retail energy market and remove barriers to engagement for the 34 per cent of customers who have never switched. Independent suppliers took the opportunity to get their claws into both the big six and Ofgem, slamming incumbents for stifling competition and criticising the regulator for over-complicated regu- lation. The CMA has set out the remedies it is considering in its full report and invites comment before 31 July.

Articles in this issue

Archives of this issue

view archives of Utility Week - Utility Week 10 07 15