CMA back down from energy price control

energy thermostat temp©

BRINGING in price controls to reduce our energy bills would act to reduce competition in the industry even further, and more should be done to get customers to engage directly.

That's one of the conclusions of the Competition and Markets Authority (CMA) following their investigation into the domestic energy market.

Instead they want to see the most disengaged energy customers - those of us who've been on a Standard Variable Tariff (SVT) for three years or more - "encouraged" to switch by having our details made available to rival suppliers.

But the idea of price controls hasn't been completely shelved, as the CMA want to see a cap brought in on prepay tariffs, benefiting some of the most vulnerable and least well off customers.

Undermining competition

The investigation
July 2015: Energy customers "paying too much"
Feb 2015: Standard tariffs 12-13% higher
Oct 2014: Competition "not working"

Despite their own survey showing that more than a third of people didn't know it was possible to switch provider, the CMA say they believe that getting customers to engage more will do more to improve competition - and therefore, prices and quality of service - than setting price controls.

When they released their provisional findings and proposals last July, the CMA suggested a transitional price cap, aimed at helping the high proportion of people on Standard Variable Tariffs pay less for their energy.

But now they say that while introducing a price cap for the most vulnerable users has clear benefits, "attempting to control outcomes for the substantial majority of customers" would undermine the competitive process.

Companies would have less incentive to compete on prices, they say, and customers would have less incentive to engage with the market themselves - which would "likely result in worse outcomes for customers in the long run".

Instead they're going to keep trying to get people to look into switching for themselves, whether we want to or not.

Information overload

The chair of the CMA investigation, Roger Witcomb, says that the Big Six suppliers are taking the majority of their customers - the 70% or so who are on SVTs - for granted.

But, he says, " those parts of the retail markets where competition is working, customers are benefiting to the tune of hundreds of pounds a year by switching".

So the CMA say they want to see the creation of an Ofgem-controlled database containing the details of all those households that have been on any one company's SVT for three years or more.

In those parts of the retail markets where competition is working, customers are benefiting to the tune of hundreds of pounds a year by switching.
Roger Witcomb, CMA

Rival suppliers would be allowed to contact the people on this database with details of their own tariffs and deals.

Because of the concerns this raises about people being spammed by energy suppliers, the CMA have said that people on the default tariff database will be given the chance to opt out beforehand - and that if they do so companies will only be allowed to contact them by post.

Those of us who've shown some degree of engagement in recent years will be given slightly more control of our data - it'll only be made available to other suppliers if we make an active choice to allow that to happen.

Accurate estimates

Smart meters
What are they?
Delays to the government rollout
Energy monitors - how they differ

The idea is that if we agree to it, a price comparison website will be able to access more of our customer data, then use that information to search out the best deals for us and let us know when there are possible savings to be made on our bills.

Comparison websites already rely on us providing more or less accurate data in order to show us the estimated costs and savings of each tariff on display - but being able to access our customer data directly would enable them to give us far more accurate results.

In the future, when smart meters have been rolled out to all homes, we'll be able to provide even more accurate data still - if we want to.

Our own suppliers will only be allowed to take one reading per day from each meter unless we explicitly consent to them collecting more than that - and it's also up to us if we want to give our meter details to a price comparison website to let them find us a better deal.

In return for this display of trust on our part, price comparison sites will need to be more transparent about the range of tariffs and providers they list, to combat the concern that they may otherwise push the deals on which they earn commission.

The CMA say they considered recommending that Ofgem set up a "non transactional" price comparison site listing all the tariffs available, allowing us to see the whole picture.

However they decided not to make that recommendation, on the grounds that Citizens Advice - a charity, let's not forget - list all the available tariffs on their site and that they believe this will "meet the needs of those customers who wish to see the whole of the market".

Fewer restrictions, more competition

Energy issues
Why we're the cold man of Europe
Government efforts to cut bills backfiring
Millions in prepay rebates unclaimed

But given how many energy suppliers there are now, and the CMA's decision to scrap the four tariffs per fuel limit, it could get much more difficult for anyone to keep track of them all.

When Ofgem brought in the four tariffs rule it was supposed to help simplify the market - but the CMA say it's had the effect of stifling innovation, and the suppliers' ability to tailor tariffs to different types of customer.

They say that removing the limit will increase competition between price comparison sites as well as the suppliers themselves, as the sites will be able to negotiate exclusive tariffs and offer further discounts funded by the commission they earn.

But that seems to be ignoring the fairly recent innovation of collective switching - which has been pushed by various consumer groups and numerous angry customers. Surely those tariffs are designed to cater to different types of customer?

In addition, the CMA are proposing that Ofgem remove the bans on complex tariffs, on certain bundled products, and on certain discounts - at present, suppliers can only offer discounts for taking a dual fuel deal, and for managing our accounts online.

Prepay cap

At least the CMA have also recommended that a temporary price cap be brought in for the four million homes paying for their energy via a prepay meter.

It's well known that prepay deals are among the least competitive in the market - and according to Citizens Advice the number of homes with prepayment meters is increasing by an average of 2,451 every working day.

Unlike those of us who pay by direct debit or on receipt of a bill, the majority of new prepay customers don't switch through choice; 60% of the meters fitted in 2014 were installed because the account holder was in debt.

cheapest and most expensive tariffs

SOURCE: Citizens Advice. Available here

So the CMA's proposal for a transitional price control, to be in place until 2020, should benefit some of the lowest income and most vulnerable homes; the CMA estimate it will cut average annual prepay bills by £80 to £90 per year.

But prepay tariffs are already among the least competitive, with the cheapest being "significantly higher" than the cheapest available to customers with post-pay meters, and the gains to be made by switching between £70 and £120 depending on the supplier.

Compare that to the £300 or so that the CMA say post-pay customers can save by switching.

It seems that even where the watchdog have chosen to bring their power to bear on the energy providers, they've done very little to make the market work any better for them - and a very large proportion of the rest of us may not fare much better either.

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