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The Topic: CMA investigations UTILITY WEEK | 4TH - 10TH SEPTEMBER 2015 | 11 T he issue of trust in energy suppliers is inextricably linked to the CMA's inves- tigation of the energy market. While restoring public trust is not the primary purpose of the investigation, it is certainly the logical upshot that optimists hope will ensue, should a clean bill of health be given to the various market mechanisms under scrutiny. Aer all, as PA Consulting Group's Jonathon Hogg reminded Utility Week readers in our February Trust special report (which can sill be accessed online), "transparency and accountability are the keys to trust and reputation". However, although the CMA's investiga- tion promises to make the energy market more transparent, cynics are more than ready to cast doubt on its ability to restore trust in energy companies – or the utilities industry more widely. The sector has been badly damaged by large-scale billing blunders and scandals over pricing, margins and dividends. Conse- quently, it remains a laggard across a range of trust barometers and indexes and at a Utility Week Live roundtable debate in April, a group of industry leaders were openly pes- simistic about whether the CMA's findings will have any positive impact on customer perceptions of the industry. It's easy to see why. It's not just utili- ties that are suffering from low trust today. All businesses, especially large businesses, have been tarred to some extent by an apparently unstoppable swell of scepticism about the value they add to society. In 2014 a You Gov study conducted for business lobby group the CBI found that just 53 per cent of people in the UK thought business was good for society and 33 per cent staunchly believed that businesses are purely moti- vated by money. Meanwhile, Edelman's 2015 Global Trust Barometer verifies that trust in business around the world has once again declined over the past year. This makes disheartening reading for those working hard within utility companies to provide consistently strong customer ser- vice and value for money, and it questions the CMA's ability to restore trust in suppliers. So is mistrust in utilities inevitable? Hap- pily, the most recent results from the Insti- tute of Customer Service's UK Customer Satisfaction Index suggest not. July's publi- cation of this biannual index showed trust in utilities gradually increasing – against a trend of flatlining trust across all sectors. Perhaps the next index will bring news that the utilities industry is no longer 13th out of the 13 sectors measured, but it will take hard work, as Andrew MacMillan, for- mer head of customer service at John Lewis, told us earlier this year. "It's worth remem- bering that perception can be stronger than reality. To change a widespread negative perception you will have to communicate a positive action a disproportionately high number of times," he said. JG How sticky are energy customers? The need to promote more switching among "sticky" do- mestic customers in the ener- gy market lies at the heart of the CMA's early findings and is the motivation behind its most controversial remedy – the introduction of a price cap or Safeguard Regulated Tariff for customers on expensive standard variable tariffs. The government and con- sumer groups have welcomed the focus on removing barri- ers to switching and encour- aging disengaged customers on standard variable tariffs to move to better deals. But is the emphasis on switching really necessary when the CMA's own research shows the energy market to have one of the highest switching rates among comparable markets? (see left). The switching rate for energy is considerably higher than the telecoms and bank- ing markets. Only car insur- ance reports a higher rate. The research also reveals that consumers who have switched energy supplier are more likely to switch provider in other markets as well. Is this another example of the CMA's investigation deal- ing with market issues which have already been fixed, even as its experts pore over them? – See "Too Little, Too Late", p9) Theory of harm 1: Does regulation distort the wholesale market? Although the CMA approves of CfDs and capacity market, concern remains that imbalance in price reforms may overcompensate generators and the absence of lo- cational pricing of constraints and losses may distort competition. Theory of harm 2: Do generators drive market prices higher? The CMA says it does not appear likely, overall, that companies have the ability and incentive to increase profits by withdrawing capacity in generation. Theory of harm 3a: Does a flag- ging power market limit competi- tion? The CMA thinks not. Based on the evidence it has reviewed to date, the CMA says current levels of liquidity appear to be sufficient to allow independent suppliers and generators to trade and hedge in the same way as the big six. Theory of harm 3b: does vertical integration disadvantage inde- pendent players? The CMA says it is unlikely that a vertically integrated company has the ability and incentive to engage in activities that would disadvan- tage smaller players in the retail or wholesale market. Theory of harm 4: does the lack of consumer engagement reduce competitive incentive? The lack of consumer engage- ment made headlines across the UK press and the CMA says it will look closer at the reasons behind consumer behaviour includ- ing the likely impact of Ofgem's tariff reforms on competition and consumer engagement in retail energy markets. Theory of harm 5: Does regulation limit retail competition? The CMA says regulatory codes fundamentally shape the market but it has not yet determined that the right balance exists between providing companies with a degree of insulation from regulatory risk on the one hand, and allowing for pro-competitive innovation and change on the other. ENERGY MARKET PROBE: THEORIES OF HARM A tipping point for trust? "The outcome of this investigation must be to create the opportunity for more trust in our industry, more trust in us as energy suppliers." • Vincent de Rivaz, chief executive, EDF