EXCLUSIVE by Scottish Energy News
The head of a fast-growing independent energy firm – headed by an expat Scot – has criticised the Competition Authority for not doing enough to foster competition in the UK energy supply industry and provided MPs with details of how the Big Six suppliers lure consumers into paying more than they need to for gas and electricity.
The UK Competition Authority published its long-awaited report on the industry last week – the same day as the referendum resulting in the vote for British Independence from the EU-bloc. Its key findings showed that:
- Seven in 10 UK consumers pay more than they need to Britain’s Big Six energy providers who dominate the market, according to the Competition Authority.
- 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.
But Ian McCaig, Chief Executive of First Utility, has slammed the authority in a letter sent to SNP MP Angus MacNeil, the chairman of the House of Commons’ Energy Committee.
Founded in 2011, First Utility is the UK’s largest independent energy supplier, growing from just over 50,000 customers five years ago to more than 950,000 today.
McCaig said: “First Utility’s concerns about continued consumer disengagement have been borne out by the Competition Authority’s findings: 70% of Big Six customers remain on their supplier’s most expensive tariff – and they are getting a substantially worse deal as a result,
“We have long been concerned that review did not go far enough to tackle consumer disengagement, with the Big Six actively finding loopholes even within the existing rules.
“This includes deliberately minimising communication and offers to existing customers, thereby ensuring their customers remain or roll onto their most expensive tariffs. To give just a few examples:
- EDF only bills its Direct Debit customers once a year, meaning that OFGEM rules requiring suppliers to show customers on the bill if there is a cheaper tariff available are effectively circumvented by only providing that information on an annual basis,
- British Gas has a white label brand with Sainsbury’s energy, offering cheap tariffs designed to acquire new customers. Until late 2015, the rules meant that British Gas didn’t need to inform its existing customers who were paying a few hundred pounds a year more about these cheaper options, despite OFGEM’s rules. Once the rules changed forcing British Gas to show Sainsbury’s energy tariffs to its customers, the price of a Sainsbury’s energy tariff increased.
- E.ON advertises a price promise to alert customers if there is a cheaper tariff for them. However, it is not available to those customers who would benefit the most those on a standard variable tariff which comprises approximately 70% of its customer base.
- A number of suppliers deliberately withdrew their cheapest tariff prior to billing runs to avoid highlighting via Cheapest Tariff messaging other options. This practice was used to temporarily minimise the differentiation between customers’ actual tariffs and the possible savings listed via that supplier’s cheapest tariff.
“Whilst the CMA correctly identified consumer disengagement and the resultant overcharging as a key issue, First Utility is concerned that its package of measures did not go far enough at helping the most disengaged.
“Instead, the CMA’s first focus was to significantly alter the existing rules to allow a potential unlimited increase is number of tariffs on offer.
“We believe these changes will result in a vast and confusing array of tariffs, explicitly designed to make it harder for loyal customers to find the best possible deals”.
See also; Scottish Energy News 27 Jun 2016
Competition Authority to bring in sweeping changes as 70% of consumers still pay too much to Big Six energy providers
Meanwhile, Bill Bullen, Chief Executive of Utilita – another prominent British independent energy supplier – has also raised concerns over the Competition Authority report for apparently favouring the Big Six suppliers.
He too has written to the Energy Committee about how vulnerable consumers on pre-payment meters have been apparently overlooked in the proposed ‘remedies’.
He told MPs: “As the only smart prepayment specialist, we felt this was essential to ensure that the CMA had taken full account of prepayment specific issues for consumers, as well as our unique business model.
“We remain unhappy with the way the CMA conducted the investigation, and the extent to which they have sought to hide critical information, both in the draft report and the final report.
“Having had two years to carry out their investigation, we had only three weeks to assess and correct the seriously flawed proposals contained in the provisional decision – a position from which the CMA’s ability to move is severely restricted.
“The CMA has proposed a price cap for the pre-pay market at a very challenging level. Utilita has argued against a cap in principle – largely because of the difficulty in determining the correct level but also because of the longer term damage to competition and other unintended consequences.
“However, if there is to be a cap, it must be applied robustly and in a way that protects all those customers who are deemed to need the support.
“Applying the cap in such a restricted way does not do this, and worse, provides perverse incentives to take action to avoid the operation of the cap (in other words exacerbates the problem of unintended consequences). The cap as proposed only covers a relatively small share of the market.
“This means that many low income households will be paying prices above the cap because they don’t have pre-pay meters. In our view this allows the Big Six to continue differential pricing, and may also allow cross subsidy between their pre-pay and credit portfolios.
“This would be expected to result in higher standard prices to credit customers and less competition in the pre-pay market in the longer term. The CMA’s rather weak excuses for restricting the cap to pre-pay customers are nothing more than an attempt to limit the impact on the Big Six.”
In terms of price, Utilita offers all its customers, new and old, the same prices, which it has maintained below the cheapest of the Big Six since 2008.
Utilita now has 360,000 households on supply (mostly dual fuel), of which nearly 90% have smart meters fitted.