What does the new CMA report mean for you and your energy bills?
More than two years ago, Ofgem referred the energy market to the Competitions and Market Authority (CMA) for inquiry. Around the time of June 2014, distrust in the energy sector was growing and there were mounting fear of price hikes. In order to take the first step towards increased competition and to renew the public’s faith in the industry, Ofgem ordered a full investigation into the energy sector.
Fast-forward to the end of June 2016 and the final report is now in the public domain, and with it came a storm of criticism, largely because it didn’t meet the expectations of the provisional findings announced in March.
The report was released on June 24th, the day after the EU referendum, so the findings have been somewhat buried in the aftermath of the result.
Love Energy Savings has dug through the report, to bring you the key findings and asked experts for their opinions on the recommendations.
A cap for prepayment customers
One group of people who may feel a slight benefit from the report are those who are on prepayment meters for their energy – that’s more than four million people. The report found that those on this method of payment were spending 12 per cent more than they should for their energy. They also have limited access to competitive deals, as suppliers focus less on prepayment cards and meters.
As a result of their findings, the CMA recommended that a temporary cap be introduced on all households with prepayment meters, and according to the report it is expected that “around £300 million of detriment a year [will be] reduced.” The cap will remain in place until all houses can be fitted with smart meters, a government project which is expected to be completed by the year 2020.
David Sheriden, CEO of Onedox, believes that the best option in the long run would be for prepayment customers to move as soon as possible: “Prepay customers should check with their supplier to see if they qualify to move to a postpay deal. Many customers do qualify but don’t realise it, such as where they move into a property and a meter is already installed. Where customers use a prepay meter through preference or necessity, it’s important to be on the best tariff, as although options are limited, some choice is still available, which means lower costs.
“It’s obviously vital that the real solution – a level playing field for all customers – is put in place as soon as possible. For postpay customers, the advice is simple – make sure you never end up on a Standard Variable Tariff. If you are one of the millions of customers who are, you are wasting hundreds of pounds each year.”
Although this particular announcement from the CMA was good news for those on prepayment meters, it fails to address the fact that those on post-payment methods are still paying eight per cent more than they should. There was no price cap introduced on these particular energy tariffs.
Price advertising websites?
Price comparison websites do exactly what they say on the tin. Whether it’s for insurance, credit cards or energy suppliers, their job is to secure the very best deal for their customers.
The report recommended that price comparison websites shouldn’t be obliged to show deals where they would not earn a commission from the supplier. Instead they should negotiate with suppliers individually to get better and exclusive deals, for consumers. According to the chair of the CMA’s energy market investigation panel, Roger Witcomb, the aim of this practice is to stimulate competition between suppliers, forcing them to offer better deals in order to gain exposure.
If this policy were to be put in place, it would mean that customers wouldn’t always be able to have access to the all the deals available to them. Speaking to the BBC, the chairman of the Energy and Climate Change Committee (ECCC) said he believed that this would result in comparison websites being no more than advertising sites: “This will lead to further consumer distrust of the whole edifice around energy.”
Many people have expressed fears that such measures will lead to customers missing out, and that it will continue to support the domination of the energy industry by the ‘Big Six’. The smaller independent firms are the ones that will typically be able to offer lower prices to their customers, but a policy such as this could force them to raise tariffs in order to be able to afford the additional costs that will now be required to be featured by comparison websites.
Andrew Beasley, Managing Director of Flow Energy, believes that if this goes ahead, great care needs to be taken: “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 favour Big Six suppliers, who have large percentages of their customer base languishing on expensive standard variable tariffs.
“This new system may means that larger suppliers can use price comparison sites to aggressively market cheap tariffs to new customers, whilst their loyal customers sit on higher rates. “In addition, the comparison sites must make it clear that they have moved away from the ‘whole market’ presentation model to once again prioritise only those deals where they are earning commission, as the public have grown to understand the whole market comparison as a key function of these sites.”
When comparing energy providers, Love Energy Savings will always strive to bring you a diverse range of options to choose from. Whilst the Big Six account for the lion’s share of the energy market, it has partnered with dozens of smaller independent suppliers so each of its customers feel fully informed about the different options available to them.
Low customer engagement
This investigation into the UK’s energy industry was first launched in order to make sure that there was strong competition, bringing customers the lowest prices possible. Two years later, and low customer engagement has been partly blamed for the high prices that are charged by certain suppliers. In other words, these suppliers impose these prices simply because they can get away with doing so. In an attempt to combat this, the report recommended that customers’ details are made more widely available.
The CMA has stated that if a customer has been on a default energy tariff for more than three years, then their suppliers should be made to hand over their contact details to Ofgem. These details will then be put into a database that will allow rival suppliers to get in touch with customers to offer them a better deal. Customers will be able to opt out of the database at any time.
Andrew Beasley of Flow Energy said that such a scheme would need to be handled carefully to avoid negative consequences: “Whilst the opening of a market database for disengaged customers is seemingly a good move, for this to work it would need to be handled and configured appropriately. This needs to be set up with the customers’ interests at heart, and shouldn’t be used as an opportunity to spam customers – a move which would only further deplete the already low level of trust in energy providers.
“Ultimately, we hope that the public debate in itself will draw attention to the fact that a vibrant, competitive market, offering good prices and great service is already out there for customers that are willing to engage with it.”
Whilst a lot of people may feel that the report failed to address many concerns surrounding the energy industry, what it did do was raise awareness of the lack of visibility and transparency that domestic and business customers alike have concerning energy tariffs. It is unlikely that we will see any immediate changesfrom the report, but hopefully at the very minimum we will start to see more people being encouraged to explore their energy options.
For the full guide visit: www.loveenergysavings.com/guides/cma-investigation-guide/
LOVE ENERGY SAVINGS
Love Energy Savings is one of the UK’s leading home and business energy comparison websites, specialising in helping people find cheaper energy tariffs. It is the company’s mission to help businesses cut back on their spending and save the environment at the same time.
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