Utility Week - authoritative, impartial and essential reading for senior people within utilities, regulators and government
Issue link: https://fhpublishing.uberflip.com/i/568088
14 | 11TH -17TH SEPTEMBER 2015 | UTILITY WEEK Policy & Regulation Analysis T he Competition and Markets Author- ity (CMA) investigation of the energy market has entered a period of consul- tation following the publication of its prelim- inary proposed remedies in July. The big six have come out with harsh questions about the CMA's fundamental analysis, but last week independent suppli- ers and consumer bodies largely welcomed the CMA's initial findings, although some of the 18 proposed remedies have divided opinion. Which remedies have raised the most concerns among the smaller players in the energy market? Safeguard regulated tariff One of the most controversial and complex remedies is a transitional safeguard tariff designed to protect disengaged domestic and microbusiness customers from high standard variable tariffs. While protection for the large percentage of stagnant customers has been welcomed by many, some, such as the Con- federation of British Industry, have warned that such a proposal would go against the grain of the market and damage investor confidence. Responses to this remedy are dominated by questions about how it would work in practice. A key question concerns the amount of "headroom" suppliers would be able to charge above operational costs, and the length of time such a tariff would be in place. The general consensus is three years, reassessed every six months. A consistent concern across submissions is that such a tariff would discourage cus- tomers from switching further, the belief being that many would be willing to pay slightly higher prices to avoid the hassle of switching. Ideas to prevent this include run- ning a government advertising campaign to encourage switching alongside the tariff, or providing an impartial database of tariffs, such as an Ofgem-run price comparison website. Business supplier Haven Power has sug- gested that such a tariff should apply only to the big six, because the independents' customer bases are by their nature made up of customers who have already actively switched. Others have called for it to be based on the number of vulnerable custom- ers in a customer base. Removal of four-tariff cap The remedy to remove the four-tariff cap introduced by the Retail Market Review has generally been received as a positive step, allowing more innovation in tariff offerings, such as those targeted at specific customer groups. Concerns, however, remain regarding the implications of removal – the potential to revert to an overly confusing marketplace that is likely to disengage customers further. The CMA has suggested that this could be prevented by implementing a higher cap on tariffs, but First Utility has argued that the cap would have to be raised so high that this would be pointless. An independently run price comparison website There are also concerns about how price comparison websites could provide full mar- ket coverage if the market is flooded with tariffs. A solution that has been supported by several smaller suppliers is an independ- ent central repository where consumers can see all tariffs offered on the market without a competitive interest by the site, such as an Ofgem-run comparison site. While this remedy has been seen by some, such as advisory firm PWC, as being difficult to implement and requiring addi- tional resources to run, an independent price comparison site has been raised as a neces- sary element in many remedies, such as the removal of the four-tariff cap. An independent site is seen as a missing but critical element in improving trust, both for the domestic and microbusiness market, and rather than being a competitor to exist- ing price comparison sites, would instead provide a government-endorsed benchmark for comparison use, especially among the elderly or vulnerable. Prioritising prepayment meters Prepayment customers have long been rec- ognised as being disadvantaged compared with direct debit customers, a finding backed up by the CMA. It recognised the technical constraints of traditional prepayment meters as being a major contributor to prepayment customers' disengagement with the market. The proposed remedies are to prioritise prepayment meters in the smart meter roll- out, which is due to start next year, or to stop installing traditional meters in favour of smart alternatives. This has received some support, notably from independent suppli- ers, but the conclusion many have drawn is that neither measure would avoid further disadvantaging prepayment customers. Smart prepayment technology is still being tested, so is unlikely to be able to be rolled out earlier than expected without technical issues. The prioritisation of prepayment meters in the rollout would, according to the Data and Communications Company, increase costs and likely delay the rollout by bringing technical issues still to be solved to the fore. It would also result in prepayment custom- ers being guinea pigs for the learning curve period immediately aer going live, bearing the brunt of problems yet to arise. Independent supplier Good Energy has instead suggested an "accelerated mop-up" of prepayment customers through an earlier deadline of April 2019, a year ahead of the rollout deadline. CMA: the independents react The CMA has published 18 proposed remedies to address problems in the energy market, but do small suppliers think they will help or hinder market development? Lucinda Dann reports. Key points A safeguard regulated tariff could discour- age switching. Removal of four-tariff cap widely welcome. An independent price comparison website would set an industry benchmark. Prioritising prepayment could be counter- productive and raise costs.