A gas flame on a cooker. © 123Rf
A gas flame on a cooker. © 123Rf

CMA outlines changes to 'shake up' energy market

11 March 2016

Energy suppliers could have to provide more detailed financial information under proposals to reform the energy market outlined by the Competition & Markets Authority (CMA).

Following an investigation into the industry, a CMA report sets out a package of measures to address problems hindering competition, which it proposes to introduce following the conclusion of its investigation in June.

The CMA said although competition had benefited customers – including micro businesses – who have switched to better priced fixed-term deals, around 70% of domestic customers of the six largest energy firms are still on the more expensive default standard variable tariff (SVT).

The authority said the annual savings these customers could make by switching to a cheaper deal have risen significantly over the last two years, and could average around £300. Customers have been paying around £1.7bn a year more than they would in a competitive market, according to the CMA’s analysis.

Measures proposed include the creation of an Ofgem-controlled database of disengaged customers who have been on a SVT for more than three years, so rival suppliers can target them for marketing.

A temporary safeguard price control to protect customers on prepayment meters, whose options are more limited, is also proposed. This would reduce their bills by a total of £300m a year, the CMA said.

The CMA said it wants to “reset” the relationship between Ofgem, the Department of Energy and Climate Change (DECC) and the industry. This could involve some legislation, including requiring the largest suppliers to provide fuller financial performance information.

There should also be more public consultation by DECC on policy decisions that will have a major effect on consumer prices, the CMA said. The industry’s self-regulation must be changed to help Ofgem ensure measures that benefit consumers are introduced promptly.

Other measures proposed included helping micro businesses through improved price transparency, tackling “rollover” contracts with greater notice periods, and ending termination fees that prevent switching.

Roger Witcomb, chairman of the energy market investigation, said the largest energy suppliers were taking many of their existing costumers for granted in terms of price and quality of service.

“Clearing the way for competing suppliers, and price comparison websites, to alert customers to the savings they can make will shake up the industry,” he said. 

He also revealed that the investigation had considered extending price controls to other customers but had decided that introducing measures to improve competition and encourage customers to take up existing good deals was a better long-term choice.

The CMA is also proposing measures to address problems in the wholesale electricity market, and said decisions affecting the future of the energy sector needed clarity and transparency.

“The fact that energy and climate policies are expected to make up 37% of the household cost of electricity by 2020 shows the impact that policy and regulatory decisions can have on bills,” said Witcomb.

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