No evidence of Big Six price monopoly or profiteering, but watchdog warns consumers who are ‘too scared to switch’ energy suppliers lose over £200 a year

electricity billsMillions of British energy customers who have not switched supplier and/or tariff have missed out on a potential saving of up to £234 pounds, according to the latest report on competition in the energy supply market.

The Competition and Markets Authority (CMA) in an update on its investigation into energy retail, said Britain’s liberalisation and heavy regulation of electricity and gas had influenced competition and several issues would be probed further.

The report also said that it not found any evidence of monopolistic pricing and profits by the Big Six energy suppliers which dominate the UK market, and whilst the industry was working very well in many areas there were some areas that meant other smaller or less established energy suppliers were finding it hard to enter the market

The CMA highlighted issues that were likely to become the focus of its probe, and whether there was an adverse effect on competition in the supply or acquisition of electricity and gas.

From the first quarter of 2012 to the second quarter of 2014, the average saving for over 95% of dual-fuel customers of the “big six” energy firms was between £158 and £234 pounds a year if they had switched supplier and/or tariff.

Between 2009 and 2013, average domestic electricity prices increased by 24% and average domestic gas prices by 27%.

Average profit margins earned on sales to domestic customers were 3.3% over that period – with average gas sale margins at 4.4% t and electricity sale margins at 2.1%.

The CMA has not formed a view on the profits of the big six suppliers, saying that “we are continuing to look at whether overall profit in energy retail has exceeded an appropriate benchmark”.

The final conclusions of the probe are not expected until November or December this year.

Britain’s energy market regulator Ofgem referred the sector to the CMA for investigation last year after concerns that energy bills were rising faster than inflation.

Big Six logo montage

Public trust in the country’s “big six” providers – EDF, SSE, Centrica, E.ON, RWE npower and Scottish Power, which control around 95 percent of the energy market – has slumped after years of rising energy bills.

The CMA has established an office in Edinburgh to consider Scottish markets – including energy. There is a prospect that the CMA could further investigate the Scottish energy market – which is massively dominated by the ‘Scottish Two’  (Scottish Power and Perth-based SSE) when the Smith Commission/ Draft Scotland Bill is enacted by Westminster after the UK election.

The CMA update also said that there have been ‘considerable concerns’ about the quality of service offered by the Big Six, which increased by 500% between 2007 and 2013. Problems related to billing, customer services and payments accounted for the majority of complaints.

Consumer groups and politicians have frequently accused the firms of using their position to raise customers’ prices swiftly when wholesale energy prices go up, but being slow to cut them when their costs have come down.

That issue will form part of the next stage of the CMA’s investigation.

Energy Minister Ed Davey said that if the competition authority eventually found any energy firms were abusing their market power, ‘one course of action could be to split them up.’

Commenting on the Competition & Markets Authority report on the Big Six energy firms, Juliet Davenport, Chief Executive of Good Energy, said:

“We welcome the CMA inquiry. This is an opportunity to transform the energy market so that it works for the benefit of consumers, not just the old suppliers. Better competition means more choice.”

“As a pioneering supplier we offer 100% renewable electricity at a fair price with top ranking customer service.”

A CMA spokesman added:  “The Investigation Group has not yet reached any conclusions, and its views may change in the light of further evidence and analysis.”

The Investigation Group has visited the premises of the six large energy firms in Scotland, England and Wales, a smaller supplier, a generator and National Grid. It has also held formal hearings with DECC, Ofgem, National Grid, consumer bodies, a small energy supplier, bodies responsible for settlement in gas and electricity, price comparison websites, a collective switching website and several academics.

If you have further information on market and competition issues, send these details by 18 March 2015 to: energymarket@cma.gsi.gov.uk

Meanwhile, David Bird, Customer Operations Director at E.ON, is due to take part in a CBI debate next week on ‘how far consumers can trust business’.

 

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