Just over two years ago the Competition and Markets Authority began investigating the energy market following concerns raised by Which? and others about ever increasing prices, lack of competition and a market that isn’t working. Today, it’s published its final decision.
Alongside the almost 500,000 supporters who’ve so far backed our campaign for fairer energy prices, we’ve been urging the CMA to take a hold of the market and deliver real change to fix an industry that has seen millions overpaying. So what’s its final decision?
Energy market problems
The CMA has identified that around 70% of customers of the Big Six are on Standard Variable Tariffs who, according to our research, could’ve made average savings of around £330 if they’d switched.
In fact, the CMA found huge differences between the cheapest prepayment and direct debit tariffs of between £260 and £320 and that those customers on prepayment meters – around 16% of the market – have been served by weak competition.
In fact, it’s found the detriment suffered by prepayment customers of the Big Six equates to 12% of a typical bill.
The Authority has also identified a number of regulations have restricted competition. For example elements of the ‘simpler choices’ rules has led to companies withdrawing tariffs and discounts in a way that has made some customers worse off.
Finally, it’s found that customers as a whole paid an average of £1.4bn a year more than they would’ve done under a well-functioning energy market.
The final proposals
It’s clear from the CMA analysis that the energy market isn’t working.
So here are some of the proposals the CMA has published to address 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. It will also be heavily tested by the regulator Ofgem.
- 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. This will be in place from 2017 to 2020.
- 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.
There are no short-term patches for a market that has been broken for many years, and the CMA’s proposals won’t fix the market overnight. The Authority’s findings confirm what we‘ve known for years, the market simply isn’t working.
With the cost to consumers standing at £1.4bn, we need to see all energy companies start to change. Our latest consumer insight polling found just 34% of people trust energy companies to act in their best interest.
It’s vital that vulnerable customers on prepayment meters are protected from high prices. It’s also imperative that the regulator tests the database proposal to see if it does actually help customers switch to better deals. We also expect to see swift action from suppliers on how they will be implementing the recommendations.
If companies don’t start demonstrating quickly that they can treat their customers fairly by delivering a much better service as well as competitive prices, Ofgem must be prepared to come down on them hard.
This is a view shared by Ofgem. Chief Executive, Dermot Nolan:
‘Ofgem urges the industry to get behind the entire package of remedies and to work with us to deliver an energy market that works for both active and disengaged customers as quickly and effectively as possible.’
So we’ll be challenging companies to start delivering and stop stalling on delivering real change for consumers.
But we want to hear from you. What do you think to the final proposals from the CMA? What do you think energy companies need to be doing now to restore trust and treat their customers fairly?