Following a year long investigation, the Competition and Markets Authority ('CMA') has published its provisional report into UK energy markets.
The investigation was triggered by a reference from The Office of Gas and Electricity Markets ('OFGEM'), which was concerned that the market was not working as well as it could.
The CMA's provisional findings confirm that the way in which this market works has an adverse effect on competition ('AEC'). According to the CMA, there are a number of reasons for this.
First, customers do not appear to be able to - or to be motivated to - shop around for the best deal. According to the CMA, the average annual fuel bill is approximately £1,200, with energy costs accounting for 10% of the budget of the poorest households. Although dual fuel customers could save an average of £160 per year by switching to a better deal, survey data obtained by the CMA showed that 34% of respondents had never considered switching. And approximately 70% of energy customers are currently on their provider's standard variable tariff, despite the fact that cheaper fixed rate deals are often available. As well as being confused by the way energy is measured and billed, customers appear to be unaware of what deals are available and perceive switching supplier to be difficult. As a result, their suppliers are not motivated to offer them the most competitive prices.
Second, regulation that has been designed to simplify prices appears not to be encouraging customers to shop around for the cheapest deals. According to the provisional findings, the regulatory framework should be modified to encourage consumer engagement.
Third, the high cost of low carbon electricity may have been partly responsible for price rises in both gas and electricity in recent years. The policy mechanisms in place to drive future investment in low carbon generation must be as efficient as possible to ensure that prices stay competitive.
The CMA has proposed a package of remedies to address these issues. Interested parties have until 31 July 2015 to comment on these. Following this consultation period, and by 25 December 2015 at the latest, the CMA will publish its final report and remedies.
This document is for informational purposes only and does not constitute legal advice. It is recommended that specific professional advice is sought before acting on any of the information given.