After an extensive two year investigation the Competition and Markets Authority found that these customers are still on an expensive ‘default’ standard variable tariff.
As these customers could each potentially save over £300 a year by switching to a cheaper deal, the Competition Authority (CMA) will be enabling more of them to take advantage.
Over all, the CMA has found that customers have been paying £1.4 billion a year more than they would in a fully competitive market.
This is one of the key findings in the CMA report, which also publishes a list of more than 30 measures will be brought in after the most comprehensive investigation into the energy market since privatisation.
These will drive down costs by increasing competition between suppliers and helping more customers switch to better deals, whilst protecting those less able to benefit from competition.
They will also bring in technical and regulatory changes to modernise the market and ensure it works in consumers’ interests.
Summary of electricity market reforms
Suppliers will be ordered to give OFGEM details of all customers who have been on their default tariff for more than three years.
This will be put on a secure database to allow rival suppliers to contact customers by letter and offer cheaper and easy-to-access deals based on their actual energy usage.
OFGEM will control access to the database and carry out testing on the frequency and form of communications, to ensure it is effective in helping customers move on to better deals. Customers can opt out at any time if they wish.
The options to switch are far more limited for the four million households on prepayment meters.
For these customers, a transitional price cap will be introduced which will reduce bills by around £300 million a year. The cheapest tariffs for such customers are currently £260 to £320 a year more expensive than those available for direct debit customers.
The price cap will remain in place until the introduction of smart meters removes the limitations on such customers accessing better deals.
The CMA is also introducing a range of measures to revitalise competition and reduce the costs borne by customers.
These include pressing ahead with reforming outdated systems for measuring and charging energy that distort competition between suppliers, reducing the costs of transmitting electricity and using competition to help ensure that financial support for low carbon generation is allocated at the lowest cost to customers.
Price comparison websites will also be enabled to play a more active role in helping customers find the best offers for them and given access to meter data which will enable customers to search instantly for deals.
The measures will also tackle specific issues faced by micro-businesses (those that employ fewer than 10 people) – 45% of which are on default tariffs.
Suppliers will now be required to publish their prices for such customers and will no longer be able to lock them into expensive ‘rollover’ contracts.
OFGEM will also be given much greater influence over the detailed codes that govern the working of the market – and which currently give undue influence to established industry participants over decisions that affect competition and consumers – and more powers to enable it to scrutinise the performance of the market and suppliers as well as the impact of policy.
Roger Witcomb, Chairman of the energy market investigation, said: “Competition is working well for some customers in this market – but nowhere near enough of them.
“Our measures will help more customers get a better deal and put in place a modernised energy market equipped for the future.
“With far too many customers paying hundreds of pounds more than they need to, they will be alerted to the better value deals that are out there and it will be easier for them to identify a good deal and switch to it.
“Those that can help with this process, like price comparison websites, will be given the ability to play a more active role.
“In other markets, they’ve played a big part in driving down prices, increasing switching and enabling suppliers of all sizes to reach customers and, freed up, they can do the same here.
“More active customers will not only save themselves money but keep suppliers on their toes, addressing many of the problems that we’ve identified.
“There are promising signs in this market with smaller suppliers getting more of a foothold and making it easier for customers to get involved will push things more quickly in the right direction.
“For those customers on prepayment meters, whose options to switch are far more limited, we’ll cap prices until the time that they too can benefit from competition.
“We’re going to strengthen the ability of OFGEM to push through change, to keep the market and suppliers under the microscope and to scrutinise government policies. With climate change and energy policies having an increasingly large effect on bills, it’s essential that decisions, particularly on support for new forms of generation, are made – and seen to be made – in the best interests of customers.”
The changes will be accomplished via a combination of CMA Orders and recommendations to Ofgem and government. The CMA will shortly publish a timetable setting out this remedies implementation process over the next six months.
All information published in relation to the investigation (including the full report and appendices) is available on the energy market investigation case page.
INDUSTRY RESPONSES AND COMMENT
Angus MacNeil, MP, Chairman of the Commons’ Energy Committee, commented: “The CMA has carried out a wide-ranging investigation of the energy market and it is important that we have time to digest the information contained in their final report.
“My main priority is making sure that any remedies proposed by the CMA and ultimately enacted by the Government are in the best interests of consumers.
“I remain concerned that too many households – particularly those on big six suppliers’ standard variable tariffs – are paying more for their energy than they should.
My Committee will be holding a public hearing on Tuesday 5 July to discuss the CMA’s final report. We will be hearing from consumer groups, academics and industry, and we will also be questioning the CMA directly to shine a light on their investigation.”
Energy Action Scotland – the national charity which aims to tackle fuel poverty – described the Competition Authority report as ‘a mainly positive step that will help some of the most disadvantaged energy customers’.
Norman Kerr, Director of Energy Action Scotland said: “The move to support prepayment meter customers has the potential to benefit those who are on some of the least competitive and generally more expensive tariffs and so we welcome this.
“However the potential for the creation of a spammers mailing list by the introduction of the disengaged customer database could have a negative effect turning customers away from all competition.”
“The report from the CMA follows an extensive review of the energy market and it is our view that there is now a need to move forward with its recommendations to allow customer trust in the market to be rebuilt.”
“The role of the regulator must now also be to ensure the energy market works well for all consumers.”
Dermot Nolan, OFGEM Chief Executive, said: “The CMA’s remedies, combined with smart meters and faster switching, clear the way to secure a new and better deal for all consumers, especially the vulnerable.
“We urge the industry to get behind the entire package of remedies and to work with us to deliver an energy market that works for both active and disengaged customers as quickly and effectively as possible.”
At SSE, Chief Executive Alistair Phillips-Davies, said: “After two years of thorough scrutiny of what is an ever-changing and dynamic GB energy market, the end product is a substantial package of reforms that will help deliver meaningful improvements for customers.
“It is a tough set of measures but we recognise where it will help drive the energy market forward to better deliver for customers. We’ve come a long way since the investigation commenced in 2014 and we will continue to engage constructively as we undertake the substantial implementation work in the months ahead.
“We hope to see other companies doing the same so the industry can move on and put its energy into delivering for customers.”
As a ‘challenger’ independent energy provider, Flowgroup plc broadly welcomed the Competition Authority report into the competitiveness of the energy market, and the way in which it has been designed to encourage more customers to switch energy supplier.
Andrew Beasley, Managing Director, commented: “More customers switching can only be a good thing for smaller energy suppliers.
“The CMA’s decision to enable price comparison sites to broker exclusive deals with suppliers for new customers will no doubt encourage competition amongst price comparison sites.
“However, care needs to be taken that allowing exclusive deals to be acquisition only – that is, they do not need to be offered to suppliers’ existing customer bases – does not simply favour Big Six suppliers who have large percentages of their customer base languishing on expensive standard variable tariffs.
“This new system may mean that larger suppliers can use price comparison sites to aggressively market cheap tariffs to new customers, whilst their loyal customers sit on higher rates.”