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Are the CMA’s energy market changes enough?

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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
Don says:
18 March 2016

Using a pre-paid meter should be no more expensive than the standard tarriff.

Individuals need to take more responsibility for their own energy account management by reading meters, noting readings and monitoring and understanding bills, too many people just complain. I submit meter readings to Npower every month and I have absolutely no problems with incorrect billing. I can predict my energy usage within close limits so allowing easy comparison between suppliers and also control over monthly charges. I do appreciate that this would be too difficult for some people with age or other disabilities who are the most vulnerable and would therefore need help.

Years ago the energy companies (or thieving scum as I like to call them) used to justify the huge difference between prepayment meters and direct debit accounts by saying the former had to be emptied and collected, monies returned and maintained etc. Nowadays these meters are electronic and can be topped up by telephone, online or at High Street retailers. They get the money upfront instantly yet they charge more for the same gas the rest of pay in arrears. They prey on those least able to pay. Their greed knows no limits, which is why I prefer to think of them as thieving scum.

Presumably it still costs some money to support the use PayPoints in corner shops and to maintain & distribute gas and electric keys, not least all those emergency actions to deal with keys lost by vulnerable households.

I like the Utilita system where only cheap & simple un-chipped cards are used, top ups can be also done over the net, and where there is no daily standing charge.

Once again, it is beyond me why Which? is not pushing to have standing charges abolished. These charges discriminate terribly against those in fuel poverty.
Without them, comparing suppliers’ charges would also be completely straightforward.

Some Which? members here do seem to favour appropriate standing charges…

However, some suppliers, e.g. Ebico and Utilita, already offer zero standing charge tariffs.

If consumers voted with their feet & wallets, by moving to these en-masse, I’m sure more suppliers would offer similar tariffs too. Then, price competition should act to make these tariffs more competitive.

At the moment however, it seems competition does not work in this market, well because too many folk are unable or unwilling to move suppliers.

This lack of grass roots consumer action allows suppliers to get away with more expensive default tariffs.

I was with Ebico when my house was lying empty before moving in. I switched as soon as we moved in because the unit rate is so high that it would have been much more expensive as soon as we started using normal amounts of power.

As there are costs associated with your energy supply that are not directly dependent upon how much you consume then there is a good case for a fixed charge to be made. I have said earlier that the basis of this should be clear and it should be a minimum. It is complicated by the way the government impose various “policy and regulation costs” on the energy supplier that make up around 14% of an average bill. How should these be recovered from consumers? No guidance is given.

A choice of the way energy companies pass these costs on will allow consumers to choose a tariff that best suits their consumption. If you are a low (probably a very low) consumer then an existing unit-only tariff might be your best choice. Otherwise a low standing charge tariff may give you the lowest overall annual cost – which is what we are all looking for, isn’t it?

I did look at a unit-charge only dual fuel tariff compared to one with a lowish standing charge (£2 a week). I calculated that unless you used only about one third to one quarter of what Ofgem define as a “low user” then you are better off paying for the standing charge tariff.

It would be the easiest thing in the world for the energy suppliers to recover the revenue they require (to cover their total costs plus the required margin) by setting a charge per unit sold. They know how much they sell p.a. and they know their costs. Amazingly, every vehicle fuel filling station in the land, regardless of size, owner, location or turnover manages to do this. This allows instant comparison, without the use of a spreadsheet.

This would mean that costs that should be the same for all consumers would not be recovered equally. Those who use little fuel would pay very little towards them, and those who use more (not usually from choice) would pay considerably more, whether they are in fuel poverty or not. This is an indiscriminate and grossly unfair way to treat consumers – if there is a more appropriate charging method. Why should one consumer have to pay nearly three times as much to have their meter read, three times as much towards the cost of installing and supplying a smart meter, and towards some of the government imposed levies simply because they are unfortunate enough to have to use more energy than another?

If my local filling station offered me a deal whereby for my regular custom they offered me a lower litre price with an annual subscription I’d consider it. By attracting more regular customers they can reduced their overheads per litre and operate more efficiently. However, the difference between an energy company and a fuel station is that the latter does not bring fuel to your vehicle, does not offer to fix your fuel price for a year, and you have the freedom to shop around every time you want to fill up. So those who use the most fuel are, in effect, subsidising those who use the least irrespective of their ability to pay.

Ofgem asked CMA to look at prepayment meter costs and tariffs with a view to making them competitive with the same tariffs others can access. Ofgem’s report contains a lot of interesting information (to some!).

https://www.ofgem.gov.uk/sites/default/files/docs/2015/06/prepayment_report_june_2015_finalforpublication.pdf

Some points – there is a fairly wide difference between energy companies in their treatment of prepayment meters.
– all of the “big 6” make no charge for installing or removing a prepayment meter
– 3 of the “big 6” offer fixed price tariffs on prepayment meters.
There is a comparable switching rate for those on prepayment meters and those on credit payment.

Prepayment meters have a place for some – those who want to pay in advance for budgeting, those with debt on energy accounts, landlords no doubt who want to ensure tenants pay for their energy, but as is said in a comment above (Thomas) with no need to service the meters there seems no reason not to offer most customers the same deals as are available to credit customers.

Perhaps Which? could do an article to show how prepayment meters can be best used, what the best tariffs and suppliers are, and look at changes being proposed?

Economists identify three types of product: comparison goods where you can see which is best, experience goods, where you find out once you have bought them and credence goods where you never really know. Switching energy suppliers should be a comparison good; in stead its is a credence good. You will never know if it was the bargain you were told it was. CMA refer to freedom to innovate. All that means is freedom to produce tariffs that confuse the consumer. Competition will only benefit consumers if they can judge between deals. They can’t. CMA know this. Allowing comparison sites to have special deals with suppliers is a retrograde step. These sites must search the market for the consumer not fix it for the suppliers. Compare the market must mean just that! Elsewhere CMA says remedies should be based on what works, not a priori reasoning. They can’t be serious about this proposal. The only charitable explanation is that it is a straw man to be knocked down. Comparison sites must do what they say on the tin.

If you have tried using Which?Switch you will find a list of all (as far as I am aware) energy suppliers and their tariffs in ascending order of cost (from your predicted usage). Simple to use. My annual spend is what matters to my family and from this list I can choose a supplier to go to. Go to a fixed price tariff and you do know what your spend is likely to be – the only unknown is how much energy you will use in the future. The “credence” then lies in your hands.

If a better deal appears then you are free to change to that. I’d advise avoiding exit tariffs to make this decision simpler. I’d also advise going directly to the company to switch to avoid any commission payments being made to the switching site operator.

indira says:
22 March 2016

energy prices are high because the shareholder’s interest are given priority at the same time as any avenues to produce cheaper energy such as solar and wind farms are being stifled.

Anne Hewson says:
22 March 2016

Even reading your energy statement is not easy…and I do think I am intelligent..but the readings are not made intelligible…and quite honestly I feel we are held hostage to the great so called six…I would like some clarity…maybe a table of how well they perform…lets just play their game and have a comparative table…how well they deliver…how much profit they make..if you move then if you have overpaid do you have to chase them for overpayment?

how do I find out which companies do econmy 10 tariffs

I think there should be a legal requirement to publish a scale of tariffs with the bill, comparing the rates for fuel with competitor companies so that customers can make an informed choice about their supplier. I also think that the Warm Homes Discount for pensioners should be given greater publicity, preferably together with the bill. I only found out about this more or less accidentally almost too late to claim. I think it would be a good idea if Which promoted this scheme too since the £140 on offer for lower income groups is a considerable help with cost of living and utility companies are not very zealous about publicising this allowance.

David, there are around 30 national companies supplying energy so it would be difficult, particularly given the range of tariffs. I’d rather see Ofgem host a price comparison website using all suppliers and a link to this shown on your bill together with your annual projected energy use. You could then make a comparison depending on your consumption and needs. For those without internet a phone number could be given to access the same data.

I agree about Warm Homes Discount – publicity should be given to any funded scheme that helps the vulnerable and genuinely needy. The 2015-6 scheme closed on 29th January but I believe you can register now for the 2017 scheme. Not all electricity suppliers belong to the scheme.

I agree with malcolm r that ofgem should host their own comparison website. I always check out deals when my contract is coming to an end but wonder whether I miss out on the best deals because the sites I visit do not list tariffs for which they receive no commission. I actually send an email to Which? with regard to their own switching website but disappointingly never received a reply. I wonder whether it is hosted by one of the main comparison sites who just add the Which? branding to their own data.

Privatisation was supposed to introduce competition?? Basically we have a privatised monopoly instead of a public monopoly but at least, for all its faults when publicly owned, it was essentially run for the public good and not for private greed.

Gerald says:
27 March 2016

Why are so many of our energy suppliers owned by non British Companies and we have to go cap in hand to get new power stations built. Where were the British financial institutions at the time, were they too busy indulging in the Casino Style Banking Disgraces of the past ?

My current contract is about to expire so as usual trawling the world for the best deal. Looking at what’s available and what I’ll save by jumping ship is very disappointing. Where one may save a small amount on the tariff they get you on the standing charge. Why does this fluctuate so much between suppliers???.

Suppliers have the freedom to decide how they recover charges imposed on them (other than raw energy). For example government levies, taxes and social payments which can make up 14% of your bill. I would prefer to see these charges, removed from consumers bills and paid out of taxation, but too late for that now. What we do have is a large number of energy suppliers that give a choice depending upon our consumption, ideology, and so on. Choice is good for consumers.

Bryan says:
30 March 2016

I live on a park home estate where we are forced to buy gas from the owners at prices which are about £12 per canister of Calor more than we could pay privately. In cold weather we can use a cannister a week.

This seems grossly extortionate and it might be illegal to overcharge to that degree for something for which you have no alternative source. Presumably the site owner organises the exchange of gas canisters and would prevent you from having an independent supply. The owner can probably buy the gas at lower prices than you can so his margin is no doubt even greater than the £12 per canister you could save. At these inflated gas prices it might even be cheaper to use electricity for heating – but I expect you will find that the power supply to your park home is not adequate to support that. It might be worth taking some legal advice [e.g from CAB] on the exploitative charges levied by the estate owner for gas supply.

If there is a fall in the “Wholesaale” price customers should receive a similar cut!!!

I have been trying without any joy to switch from Scottish Power. I went to the Ombudsman last year as I was getting nowhere with them and sad to say Ombudsman was worse , no help whatsoever.
tried switching last month and founf out that as I have 3 meter readings it complicates it and not many companies will take you on.
Have sent letter to Scottish Power asking how to change this meter , still awaiting reply.

When the price of oil goes up,all energy suppliers raise their prices fast because of increased costs, the price of oil has dropped through the floor, but the prices have not gone down they are still rising. And above inflation.
We have winters in the UK,to my mind they want it like the 1940s/ 1950s/and the early 1960s.Where every winter the old especially also the young died in droves because they could not afford to keep warm winter times.

can’t seem to vote on this page. hopefully that means I have already.

Got my yearly usage Gas/Elec both with BG What a joke I Can save under £20 each by going to DD. I don’t use loads of energy so I use payg. So no incentive to use less energy which is the opposite of the gov stance. If I use more I’ll get more discount , ok but I can’t use more if I tried. Unless I’m wasting energy and contributing more to climates change. Go figure.

cmartin. I can’t figure. You can choose a tariff that gives your lowest annual cost. But how does that incentivise you to use more energy? If you use more, you’ll pay more; the objective is surely to use only what energy you need to at the lowest overall cost. Sorry if I have misunderstood.

Have you tried other companies? You may make more savings there. Try Which?Switch to get a comparison; its easy.

“Switching continues to rise, with 8% more customers switching energy in the first three months of this year compared to the same period last year”.
Ofgem commenting today on the current market. Still much to do.

https://www.ofgem.gov.uk/publications-and-updates/switching-increases-customers-respond-savings-325?utm_medium=email&utm_source=dotMailer&utm_campaign=Daily-Alert_29-04-2016&utm_content=Switching%20increases%20as%20customers%20respond%20to%20savings%20of%20up%20to%20%C2%A3325&dm_i=1QCB,476MD,F31FFV,FACMK,1