Utility Week

UTILITY Week 19th May 2017

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

Issue link: https://fhpublishing.uberflip.com/i/825252

Contents of this Issue


Page 13 of 31

UTILITY WEEK | 19TH - 25TH MAY 2017 | 13 Policy & Regulation E nergy has become a political football. Both the Conservatives and Labour are promising radical reforms in a bid to cut consumers' bills. A laudable aim. But the headline proposed solution – a cap on prices – is doomed. And here's why. Ofgem, the energy regulator that would assume responsibility for pricing the domestic supply market under the next government, commissioned an extensive report into the energy industry in 2014 from the Compe- tition and Markets Authority (CMA). The report, published last year, found that energy companies are not making excessive profits (particularly in residential supply) and that price intervention is not in the best interests of the market. What it did find is that the main problem with the energy market is the lack of switching by domestic consumers: 56 per cent of respondents to the survey said they "had never switched supplier, did not know it was possible, or did not know if they had done so". The CMA concluded that for "most domestic customers on standard variable tariffs (SVTs), detriment will be reduced as soon as they engage [in the market] effectively". Energy firms are routinely accused of over-charging their customers. We're repeatedly told the energy market is "broken". But if we change the syntax from "over-charging" to "over-paying", and from "broken" to "lacking consumer engagement", we shi the emphasis onto consumers, and give them the power to confront the big six behemoths. Given the facts – significant price differentials between SVTs and fixed-rate deals, 50 competing providers, hassle-free 17-day switching – it's self-evident that investing time, resources and money on raising consumer awareness of switching would bring huge consumer benefit. A future government could explore many initiatives without tinkering in the free market, such as: •  implementing the CMA's recommendations,  including  prompting customers to engage, thus raising switching volumes and boosting competition; •  extending awareness campaigns such as Go Energy  Shopping, which achieved uplis in customer switching; •  removing the erroneous perception of  "hassle and not  worth it" that clouds the energy switching market; •  supporting initiatives such as Midata and the smart  meter rollout to empower customers to understand their own energy usage. It bears repeating: the energy switching market isn't broken, regardless of what politicians say. We have multiple suppliers, great choice, tariff inno- vation and significant savings. These are available today for the vast majority of UK households, at amounts two and three times the suggested £100 cap. Put another way, there are currently more than 70 available tariffs that would save the average UK house- hold more than £100. And there's the broader issue – does market interven- tion actually work? Experience suggests it would lead to a fall in competition, with prices settling at a higher level than in a free market. A price cap would almost certainly mean that cheap deals would disappear, disadvantaging those who have already engaged in the market by forcing them to pay more. There are also practical considerations. It has been proposed, for example, that Ofgem should set the cap with reference to wholesale prices. Good luck with that: wholesale prices jumped 50 per cent in six months last year, yet some suppliers increased prices earlier this year, some lowered them and some froze them. How would Ofgem manage this minefield of choosing just one approach and number to "peg" prices against? Additionally, how would Ofgem balance social and environmental costs in this pricing approach? Would the Energy Company Obligation or suppliers securing an "acceptable" net profit margin be mutually compatible? If you tell someone a chair is broken, they won't sit on it. But what if it isn't broken and is actually more comfortable than their current chair? Haven't you denied them the opportunity to make themselves more comfortable? More effort spent removing the "it's not working" label from the energy switching market, rather than on ill-judged intervention, would deliver the results consumers deserve, saving UK households far more in the process. It's to be hoped that, in the coming weeks, politicians of all stripes will remain open to coherent, well-founded arguments, and will not limit themselves to slogans that promise much but would actually deliver very little. Stephen Murray, energy commercial manager, Moneysupermarket.com Energy market is not broken More effort spent removing the 'it's not working' label from the switching market would deliver the results consumers deserve. Opinion Stephen Murray

Articles in this issue

Links on this page

Archives of this issue

view archives of Utility Week - UTILITY Week 19th May 2017