Utility Week

UTILITY Week 29th April 2016

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Page 26 of 31

UTILITY WEEK | 29TH APRIL - 5TH MAY 2016 | 27 Customers Analysis L ast week the Competition and Mar- kets Authority (CMA) published 65 responses from the industry to its pro- visional remedies to increase the competi- tiveness of the energy retail market. Reaction has been mixed, with suppliers clashing over the potential impact of the rem- edies, such as the consumer database, the removal of the four-tariff cap element of the retail market review (RMR), alterations to the confidence code for price comparison web- sites (PCWs), and even the timescale. How- ever, there is one area where suppliers agree: the customer detriment figure of £1.7 billion. The consensus is that this figure has been derived from "flawed" methodology. Customer detriment The big six, along with Ovo, dispute the £1.7 billion figure, claiming it is unsound. Centrica calls the analysis behind the fig- ure "seriously flawed"; EDF says it is "not robust"; Eon states it "cannot be relied upon", while RWE, SSE and Scottish Power have also expressed dissatisfaction. Their criticism stems from the fact that the CMA's methodology for its "direct" analy- sis used First Utility's and Ovo's retail selling prices as benchmarks. The suppliers claim the differences in scale between First Utility and Ovo and the larger suppliers mean long- term hedging is not taken into account and there is a failure to acknowledge that a like- for-like comparison is not fair representation. Timescales Co-op Energy and First Utility back the swi introduction of the remedies, with the for- mer calling for "speedier changes" than the CMA sets out. They also raise concerns over whether Ofgem will be able to keep up with the rate of change to the market. First Utility calls for an "alternative time- line" for the implementation of the remedies, with a phased introduction of the changes to the simpler aspects of RMR within the first 12 months aer the final remedies are pub- lished. Further changes to more complex ele- ments of the market should then follow. SSE takes the opposite stance, claiming the CMA's proposed timeline is too quick for the range of measures it wants to introduce. Database security One of the CMA's potential remedies is the creation of a customer database, accessible by all suppliers, that holds details of custom- ers who have not switched tariff within the past three years. SSE, Scottish Power, EDF Energy and Eon say their customers have expressed concerns over the privacy of this data, adding "this should not be underestimated". There are fears that customers on this database could receive a barrage of marketing material. Ofgem sought to allay these concerns, say- ing it proposed a trial of the database before it went fully operational, to demonstrate its security and prevent mass marketing. RMR removal Scottish Power and SSE are joined by Utility Warehouse and Utilita in their support for the removal of elements of the RMR reforms, including the scrapping of the four-tariff cap. SSE states the removal will enable inno- vation on tariffs and greater scope for com- panies to "differentiate themselves". Co-op Energy and First Utility again took an opposing stance, with the former stating there is a "risk of a return to a profusion of multiple tariffs and the consequential cus- tomer confusion". Price comparison websites The CMA set out plans to allow PCWs to negotiate exclusive deals with suppliers, which they can then offer to consumers. Ovo says this creates a "power shi", with the PCWs, rather than the suppliers, hav- ing control in terms of the trust in customer relationships, and that disengaged custom- ers, who remain unlikely to switch, "may be over-charged to an even greater extent". Co-op also slams the move, stating it will "reduce transparency" in the sector, as cer- tain deals are pushed and promoted ahead of others, and the requirement to present a full market view to customers is removed. The big six, however, support the plans, saying that, with the removal of the tar- iff cap, sticking with the whole of market approach could be "confusing". It is now up to the CMA to go through the 65 responses, assess and consider the dif- ferent, and oen conflicting views, before publishing its final set of remedies. Come June, we will know how much it has taken on board. Mixed reaction to remedies There is much disparity in the industry's responses to the proposed remedies for the energy retail market. Now it's up to the CMA to consider those views. Mathew Beech and Saffron Johnson report. CMA key measures • An Ofgem-controlled database that will allow rival suppliers to contact customers who have been on a default tariff for three years or more, to offer them better deals. • A transitional price control for the four mil- lion households on prepayment meters. • Removing restrictions on the ability of new suppliers to compete for prepayment customers. • Strengthening the ability and incentives for third-party intermediaries such as price comparison websites to help customers find better deals. • Removing the four-tariff rule, which limits competition and innovation. • A requirement that the 700,000 house- holds on non-Economy 7 restricted meters can switch to cheaper single-rate tariffs without a meter replacement. • Helping microbusinesses through improved price transparency. • Ensuring that measures in Ofgem's pro- gramme to provide domestic customers with clearer information are prioritised. • Ensuring that the contracts for difference process where the government supports investment in low carbon generation is carried out transparently. • Reforming electricity and gas settlement processes to lower costs to consumers. • Introducing a locational pricing system to take account of transmission losses incurred when transporting electricity. • Improving the policy and regulatory framework to provide a clear division of responsibilities and transparency in relation to policy creation.

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