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Are the CMA’s energy market changes enough?

Question mark light bulb

The time has come. After two years investigating, the Competition and Markets Authority has given its final verdict on the energy market. The million dollar question is; will the CMA’s proposals deliver fairer energy prices?

We’ve been urging the CMA to take a hold of the energy market and deliver changes that would finally fix an industry that sees millions paying over the odds.

We’re backed by more than 360,000 of you, and so last week we sent a dossier to the regulator rounding up the views of those affected by high energy prices. People like Gemma:

‘Everybody should be able to keep themselves warm – it’s awful in this day and age that the vulnerable and those on low incomes can’t afford to properly heat their homes.’

At the same time we asked you if you were confident that the CMA would deliver fair energy prices. An impressive 11,000 of you voted, and only 7% of you said ‘yes’. A resounding 76% said ‘no’.

The regulator certainly had a lot to live up to, so how has it done?

The CMA’s proposals for the energy market

The CMA points out that 70% of the Big Six’s customers are on the most expensive standard deal, adding that customers are paying £1.7bn a year more than if there was a competitive energy market.

So here are some of the proposals the CMA has set out to resolve this:

  • An Ofgem-controlled database of customers who’ve been stuck on their supplier’s default standard tariff for more than three years, allowing rivals to contact them with better deals. This will be subject to strict safeguards on communication so that you can opt out at any time.
  • A temporary price cap to protect the four million vulnerable customers on prepayment meters, which would reduce their bills by a total of £300m a year.
  • Strengthening the ability and incentives for price comparison sites to help customers find better deals by giving them access to relevant information like customer meter numbers and allowing them to negotiate exclusive deals with suppliers.
  • Removing the four tariff rule, which the CMA says limits competition and innovation, and therefore allowing suppliers to offer deals designed for certain customer groups.

Our verdict on the CMA’s proposals

It’s certainly right to ensure that vulnerable customers on pre-payment meters are protected, but there are lots of customers who are struggling to pay their bills who won’t be helped by this price cap.

Releasing customer data to rival suppliers must also be strictly controlled so that it actually helps customers switch to better deals and doesn’t result in more unwanted nuisance sales calls.

There’s still clearly a long way to go before we’ll have an energy market working for all of us. It’s now time for the energy suppliers to stop resisting change and start working harder, and together, to restore trust in the energy market.

Your verdict on the CMA’s announcements

Now we want to hear from you. Are you pleased with the proposals announced by the CMA? Are they what’s needed to reform the energy market? Do you think they’ll make a difference to you and your family? Vote in our poll and then share your more detailed views in the comments below.

Do you think the CMA’s proposals are enough to fix the broken energy market?

No (92%, 25,741 Votes)

Don’t know (4%, 1,188 Votes)

Yes (4%, 1,016 Votes)

Total Voters: 27,945

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Useful links:

The CMA’s energy market investigation – summary of provisional decision on remedies (PDF, 679KB, 46 pages)

Comments

Well, what a waste of time & money all this was?

Our data will be shared, so now we will have junk mail from every energy company our there telling us how much we can save.

Plus while the pre-paid price cap is good as vulnerable people are on it. That’s the only good thing i can see out of this report. The CMA are scared to do anything HARD.

Last month British Gas did a small price cut, then we had BG job loses. NPower did a small price cut, then 2,500 job loses. The CMA is scared to do anything massive as they will be blamed for anymore job loses we have in the energy sector.

I agree, there will be uninvited mail, ‘phone calls & emails all trying to convince us they are the cheapest and it will, at the end of the day, still be just as difficult to work out who really is the cheapest for us as individuals.

Yes agree in all that Lee Beaumont mentioned

So the CMA thinks it has done those on prepayment meters proud. Don’t they make you die!

I have never understood the rationale for charging people with prepayment meters more for their energy usage compared to those who have standard credit meters in their homes. The energy companies obtain their money in advance from prepayment customers before any gas or electricity is used. There is no expensive billing process required to administer prepayment meters and, the administrative cost associated with the usage of gas and electricity on these meters is reduced owing to the elimination of credit control and debt recovery processes for prepayment customers, compared to those who may get in to difficulty with paying for energy charged through a standard credit meter.

The energy companies in this country make supernormal profits partly at the expense of the vulnerable on prepayment meters by making them pay extra. Those on prepayment meters should pay the same as any other customer. I am sure that energy companies would still do nicely if this were the case.

The CMA chair seemed to lack any real clue as to why more don’t switch. He said “The reason people don’t switch is because switching is perceived as awkward and cumbersome”. Noting about the unintelligibility of the average tariff, of course.

Tony says:
10 March 2016

The reason why people don’t even attempt to switch is 1 they can’t be bothered 2 they think they are going to be ripped off.

Tony you forgot;
3 –
many people rent the properties they live in and their leases especially with respect to private rentals are short term 6 to 12 months. They have no future property security and such leases make switching a risk. Eg: a tentant finds a cheaper gas deal, but it is a 3 year contract – the landlord decides not to renew the lease. The only other properties available to rent have only an electricty supply, the tentant is now out of pocket as they have to pay to get out of the contract early.
4 –
Some private landlords have clauses written into lease agreements which prevent tenants from changing utility providers, without agreement and permission from the landlord.
My friends have this problem and believe you me it makes them very angry. The CMA chair etc have no clue about the real world. Some people really are stuck with the overpriced tarrifs they have!

According to the CMA report, around 4 million households are paying around £300 more than they need to and the solution is seen as more promotion of switching and making even more tariffs available.

We know that many of the most vulnerable questions are ‘disengaged’ with the energy market, so I suggest we focus on why it is possible for any company to charge a customer around £300 more than necessary.

Come on Which? It’s time to get this racket sorted out once and for all.

This is a pretty bad report on Ofgem’s endeavours over the years, including its predecessors OFFER and Ofgas. We expect industry to be a few steps ahead of the Regulator but Ofgem have actually managed to make things worse not better it would seem and have been slipping further behind.

This £1.7 billion that is being overpaid by customers on the most expensive standard tariffs will have to be redistributed across the entire customer base unless there are potential efficiency savings available to offset it, and I doubt that.

I haven’t seen anything which promises to reduce the dominance of the big six suppliers or to increase the market penetration of the smaller companies. And what about the interaction between wholesale and retail energy prices? And vertically integrated companies that are buying and selling between their generating and trading arms? Perhaps it’s all in the small print and Which? will dig this out for us in due course.

I think it would be useful to have a discussion of the pros and cons of ending the four-tariff rule and what should take its place. We had years of baffling and confusing tariff manipulation by the industry [enabled by digitisation and fragmentation of supply data and service add-ons] so Ofgem held them down to only four tariffs including one with a standing charge that could be nil [such simplicity!]. Now the CMA says that hasn’t helped and has actually reduced competition, so where does that leave us? And has any light been shone on the murky issue of standing charges?

I was hoping for something bold, like customers on the most expensive tariffs for twelve months being automatically transferred to the most favourable one – not sit there for three years before being exposed to the full force of bad selling from other energy companies and their upselling offshoots.

Was there any mention of the distortion of prices caused by the tethering of various government levies and obligations to energy bills? I think I shall have to digest the 46 pages of summary and see whether I still have the appetite to read the whole report.

Switching is straightforward and previous studies have shown that many people who can, and understand the savings, don’t bother. You cannot force them to change. But you can help the vulnerable who don’t find change easy and this is where the effort should be concentrated.

However, if you persuade most people to switch to cheaper tariffs from standard variable ones then those “cheaper” prices will rise, to maintain the energy companies profit margins. So does this “saving £1.7bn” a year really have any credibility? I don’t see how.

We must also be careful about the “choosing between heating and eating” emotive argument. That is about simple poverty, and could be a comment on the high cost of rent, food, just as much as energy. We need to ensure that all those deserving of support can get the essentials, and not expect a small change in energy tariff structures to solve all these problems.

With 30 or so energy providers looking for customer it will need a little time to sort out the best deal for your own particular circumstances but with phone and on-line services it is quite easy, and only needs doing maybe once a year.

I would like to see Ofgem providing a comparison site of all suppliers and tariffs with no switching backhanders such as the commercial sites get. I’d like to see it well publicised, made available on line, by phone, and by mail – snail and e-.

I would like to see Ofgem publicise all the types of costs in your energy bill – raw energy, transmission, government regulatory and other costs, smart meters, admin, so we understand what we are paying for. I would also like to see Ofgem put “benchmark” tariffs together to show the sort of range of charges different users should be expecting to pay, against which we can judge whether our supplier is giving us a fair deal. Cost is not the only reason we choose a supplier; some want “better” customer service, green deals, prefer smaller copmanies, but cost to most is a major factor.

Chris O'Donovan says:
10 March 2016

Renationalise electricity and gas.

Should be fairly easy to do, as they only need to buy one utility company. set reasonable price and the rest will have to follow. Only problem is they need to do it before anyone realises that’s what they’re doing.

Exactly, if the government owned and operated an energy company on a non profit / low profit basis, they could offer the best pricing and lead by example.

John Hunter says:
10 March 2016

Not just gas and electricity,but ALL essential services.No chance with this lot of sharks in power.

What about the water supply as well?

David Bosworth says:
10 March 2016

Absolutely! All public services in public control.

Linda Robinson says:
10 March 2016

Thank you for this thread. Yes please, renationalise all essential services.

…would that include the news media, like BBC, ITV, Sky and Which?

Another toothless report! These companies are in it for the money. They won’t change unless they’re made to and the current government is unlikely to do that!

All I’ve heard this morning is that the Customer is at fault and the Energy companies are not too blame, but not one of the people who are meant to represent us has answered the question ‘Why when the wholesale prices have dropped so much the drop to the customer has been so little?’ Makes you wonder who is paying these ‘independent’ people/companies!

I think switching at the moment is a huge con. Switch and you’ll save £127. Yet if you actually look at the figures, they arrive at that saving because they’re allowed to assume when your current tariff ends you switch to a standard tariff. Yet upto the time your current fixed tariff ends you’ll actually be paying more. The saving is purely because the new tariff is cheaper than their standard tariff. So basically OFGEM are allowing energy companies to keep the price of energy higher than it needs to be. Where was the CMA recommendation on getting that stopped.

Sep 2016 Leccy kWh 10.77p SC 18.00p Gas kWh 2.993p SC 25.00p
Jan 2017 Leccy KWh 11.28p SC 18.90p Gas kWh 3.029p SC 26.25p

Diff + 0.51p + 0.90p +0.036p +1.25p

No wonder they want me to switch. Switching with the current rules is a game of Smoke and Mirrors.

IT HAS TO BE STOPPED.

Ernestine says:
10 March 2016

I’ve read 15 pages of comments looking for someone to mention this important point. The government and regulators (and Which) bully us into continually switching to distract us from the real problems with the energy market. Most switching sites are misleading (if not mis-selling) by using this artificial ‘before’ price in their comparison. A few sites allow you to remove the assumption (if you spot the fine print). If you are on a fixed tariff the saving drops dramatically or disappears as you show in your example.

This was not a truly independent report. Lets have 1 cheap tariff for all, with further subsidies for those who really need it and proper investment in renewables. Solar and wind turbines can make a significant difference if the oil giants & back pocket supporters were not undermining the issue. Beyond that there is still wave and tidal that can make a great contribution to this island of ours.

I disagree, those of us that do our homework and find the really cheap rate taffies would then end up paying more! If people can’t be bothered to switch that that is their fault not ours!

For pre -paid meters the standard charge should be stopped and a reasonable energy rate applied.

Brian you’re spot on. Pre-payment customers especially SSE customers pay a much higher daily standing charge than customers paying by DD with paperless billing and it is a disgrace.

The outcome is not much help to those who need help.
There are many people who do not have computers and access to them to go on line to change suppliers etc.
Changing suppliers is not a simple process as the Chair of the CMA makes out it is.
The energy suppliers should be made to automatically put their customers on the most economical tariffs available to them.
The CMA do not appear to have grasped what is required of them to serve the consumer.

They do however have mobiles and can go onto free wifi points and do it there. That’s what a lot of people I know do.

We change suppliers with out any problem, there are good small companies out there. You just have to look for them…

I am not interested in comparing tariffs.
I want energy unit price for each company in kw/h.
Then I can compare.
Then I can budget.
Then I can make an informed choice.

John – Have a look at the introduction to this earlier Conversation: That’s why Which? wants the government to step in and legislate to require single unit prices for each energy tariff, in the same way that petrol prices are displayed on the garage forecourt, so that people can easily compare between suppliers to find the cheapest possible deal for them. https://conversation.which.co.uk/home-energy/confusing-energy-prices-ofgem-plans-tcr-single-unit-price/

That was nearly three years ago, and confusing prices are still with us.

This “simple” (so called, actually over-simplistic and unfair) proposal has not been accepted by the many organisations that consider the market and contribute to the CMA’s work. For example, you have to buy not just gas, but also electricity. Different suppliers will have differences in the tariffs so you’ll still have to use your annual expected usage to calculate your overall dual fuel bill. It would also lead to indiscriminate subsidy between those who can afford to pay, and those who can’t, whether they be high and low users.

Fair should mean fair to everyone, not just one group.
I’d like Which? to have produced a thought-through, unbiased and fair proposal that was not discriminatory. A reminder that their proposal was based on the false premise that most adults could not perform simple calculations once a year. It’s probably too late as the proposals have now been issued. A lost opportunity perhaps.

Fair might mean different things to different people.

Some folk say “fair prices” when really I think they mean lower prices.

Others might think “fair prices” would vary according to the customer’s needs and ability to pay.

As a long-standing energy consumption freak, I’d like to see prices that encourage more efficient use of energy and less pointless waste of energy, so I’d quite like to see a sliding scale of pricing, to penalise users with (unreasonably?) high energy consumptions.

Derek, those who have to use larger amounts of energy include families with poor quality housing, elderly, ill health, in all day, large families with lots of washing and cooking, medical needs, higher-than-average temperature needed etc. etc. My guess is most people use only the energy necessary. Just because someone has high usage does not mean they are profligate. What we should not do is penalise them for something out of their control.

Helping people reduce energy consumption I agree is worthwhile, not only for their pocket but to reduce the need for extra generation and gas supplies. Like help-to-buy we could make money available to pay for worthwhile improvements through a long term low interest loan- insulation, double glazing, gas heating for example.

Malcolm, I agree that is a practical problem. However, from experience I’m not convinced that you are guessing right when you say that most only use the energy necessary. I think more than a few just use whatever they want and then moan later if they cannot afford to pay.

I could give hundreds of examples of how people waste energy. For example one of my neighbours has a 500 watt outside lamp that’s on each night, even when he is on holiday. I know people who never use the timer on their heating. Derek is absolutely right about pointless waste of energy.

alf prenter says:
10 March 2016

This is another waste of money and time , you can’t have the generators , the retailer and from the very start there were no provisions for the poor .The opening up of our nationalised utilities and trains has been a disaster for the ordinary people of this country .

Bernie says:
10 March 2016

We need them all to supply a small limited no of Tariff “which are the same” so that we can have direct price comparisons without the misleading marketing ploys

It is almost impossible to compare prices between companies. The report offers very little and appears to be a very bland attempt to placate dissatisfied customers. Is OFGEM truly independent?

We should not have to be constantly switching to get the best deal – this seems to be the stock answer to everything . I don’t want the hassle of constantly comparing companies, many elderly do not have the internet to do enable comparisons to be made.

My Grandmother is almost 93 and she is a power seller of books on eBay to supplement her pension. She got her first computer at aged 80! She is on Facebook too.

Good for your nan dude but what about 95% of the other nans? Some of them can’t make a cup of tea on their own let alone bust the calculator out and start comparing “British Gas” to “First Utility” on uSwitch

Extremely disappointing very little for 2 yrs work – it is right that those with prepayment meters are given a better deal – but theirs nothing for the rest of us its time there is a full list of energy supply companies which
show all of the deals available including price per KW, daily standing charge, early cancellation charges, fixed or variable, at the moment there is no website where all this information is available in one place and no help
for those with no access to a computer, the comparison sites go some way to help but even those don’t show
all of the companies available and different sites have different deals, but more importantly the energy companies have not been made to pass on the cheaper prices they now enjoy! This year I will be paying more
than last year despite wholesale energy prices being cheaper.

It would be a good idea if government ordered companies to offer their goods at the very lowest price,instead of premium offers & other inducements that only cloud the issue.

I don’t think a Government could force a price on a retailer – but legislation might be used to force each company to treat all its customers evenly. I.E. each company would have to choose a single unit price for electricity and for gas.

This would probably mean the end of longer term fixed price deals but would still allow shopping around, if different companies were allowed to charge different prices.

I have often thought of this for Apple – especially given its $50Bn parked off-shore so it avoids paying tax in the US.

And then lets go to the perfumes which cost pence to make, and to cars ……

I think there is a rational argument that applies to infrastructure projects and utilities where the pay-off is perhaps a decade away. Much further than apparently Governments and companies think. The CEGB was actually very good at planning into the future.

This is a spit in the Ocean, will help a few, does nothing for the majority. There should only be one tariff and that should be the lowest one possible. The differing companies should compete on service, not price. Ideally ALL domestic utilities (Electric, Gas, Water, Rail, Buses, Prisons,Telephone, Docks, Mines and Shipyards) should be renationalised and run as a ‘not for profit’ businesses. Charging just enough to pay for itself and a percentage for reinvesment.

I disagree as the are peak and off peak times. If people were more conscious about how much energy they really needed and stopped buying power hungry appliances then the energy companies would have to start lowering their prices to attract more customers. It’s a case of supply and demand…