Utility Week

Customers UTILITY WEEK | 18TH - 24TH MARCH 2016 | 27 T he Competition and Markets Authority (CMA) has now pro- posed various remedies to make the UK retail energy market more competitive. However, much debate has focused on the average £1.7 billion a year from 2012 to 2015 by which the CMA believes retail customers were over-charged because of their reluc- tance to shop around. Centrica put out a statement challenging this figure, that – in time-honoured civil service jargon – it appeared not to recognise. Indeed, Centrica stated, "we continue to disagree" with it. The CMA confirmed in its provisional Decisions of Remedies Report that its analysis had been based primarily on the estimated detriment caused by adverse effective competition (AEC); in short, apathy, or – in the CMA's phraseology – customer disengagement. In calculating the level of detriment from AEC, the CMA used the average prices offered by different suppliers to their customers and compared these with a benchmark price, which is derived from the average prices offered by the most competitive suppliers. Various adjustments were made to achieve a credible like-for-like compari- son – at least in the CMA's judgement. The CMA estimated "the detriment from excessive prices to the domestic customers of the six large energy firms to be about £1.7 billion a year on average over 2012 and 2015". It added that its latest figures suggested the annual over-charge figure was now £2.5 billion. On its alternative indirect methodology, the over-charge figure was appreciably lower at between £600 million and £1.1 billion a year. However, this methodology is based on suppliers' profitability levels and the efficiency of their cost bases; its data is arguably less robust. When full details of the CMA's financial methodology become widely available, they will be rigorously scrutinised by the leading energy suppliers, who may well come up with different figures. To address the alleged over-charging issue, the CMA has proposed various remedies, especially in the prepayment meter seg- ment. It advocates a price cap on domestic customers' prepayment meters, beginning next year and lasting until the end of 2020. Several of the other proposed remedies are rather more arcane. For example, the CMA plans to authorise "Gemserv and Xoserve to give [price comparison websites] access upon request to the Ecoes [Electricity Central Online Enquiry Service] and Scoges [Single Centralised Online Gas Enquiry Service] databases respectively on reasonable terms…" Enough said. Of the larger energy companies, Centrica apart, few offered sub- stantive views on the CMA's conclusions. But financial markets were reassured and shares in Centrica and SSE rallied. For the smaller players, the outcome was disappointing. Good Energy chief executive, Juliet Davenport, stated the priority now should be to "unstick the stickies". Her counterpart at Ovo Energy, Stephen Fitzpatrick, described the two-year enquiry as "a complete waste of time". Debate about the planned remedies and the CMA's financial mod- elling behind its £1.7 billion annual "rip-off " figure will continue. The focus now shi¥s to Decc and Ofgem – and their responses. Nigel Hawkins, director, Nigel Hawkins Associates CMA energy probe timeline: 26 June 2014 Reference made by Ofgem July-September 2014 Initial information requests; initial submissions from main and third parties; publication of initial issues statement September 2014 Site visits, issue questionnaires October 2014 Hearings January/February 2015 Publication of relevant working papers and annotated issues statement February/March 2015 Further hearings March 2015 Deadline for all parties' responses/submissions required before provisional findings July 2015 Notified provisional findings and possible remedies July-October 2015 Consideration of responses to provisional findings and consultation on remedies including response hearings March 2016 Publish provisional decision on remedies April 2016 Deadline for responses to the provisional decision on remedies Late April 2016 Final deadline for all parties' responses before final report June 2016 Publish final report 25 June 2016 Revised statutory deadline "The CMA believes retail customers were over-charged by £1.7bn a year." Opinion Nigel Hawkins become a recognised provider of information and support to domestic electricity custom- ers on restricted meters. Reforms to the elec- tricity and gas settlement processes to lower costs to consumers were also a suggestion. With the final report and remedies due to be introduced at the conclusion of the two- year investigation in June 2016, the market has already made some improvements (see graphic, opposite). Switching rates are at a record high, prices are falling to reflect a drop in wholesale costs and competition is growing as new suppliers enter the market. The CMA has taken a so¥er approach than the industry initially feared, although there are still a couple of unexpected rem- edies. Price comparison websites, analysts and consumer groups, however, still accuse the big six of getting off lightly and the CMA of weakening its approach. Key points • A possible name change for standard variable tariffs. • Temporary price control for prepay customers until the end of the smart meter rollout (2020). • An Ofgem-controlled cloud database for customers' information to be accessed by suppliers. • Removal of the four-tariff rule under the Retail Market Reform. • Greater independence for Ofgem and a "reset" of the relationship between the regulator, Decc and the industry. • More data to be made available to price comparison websites and intermediaries. • Around 700,000 households on non- economy 7 restricted meters are allowed to switch to cheaper single-rate tariffs without requiring a replacement meter. • Making the costs of green subsidies transparent to consumers on their bills. • Reforms to the electricity and gas settlement processes to lower costs to consumers. • Removal of barriers such as personal debt issues to enable customers to switch.

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