CMA energy market investigation In this feature market reform electricity and gas competition Under the spotlight Proposals to open up competition in the energy market to get consumers a better deal have been set out by the Competition and Markets Authority but will it put consumer protection at risk? Maeve Sinnott reports F or many, it will come as no surprise that energy customers are potentially paying 1.7bn more a year than they would in a more competitive market. According to new analysis of domestic energy use in the UK by the Competition and Markets Authority (CMA), around 70 per cent of customers with the Big Six energy firms are on the more expensive default standard variable tariff (SVT) yet the average customer could save more than 300 a year by switching deals. Following an 18-month investigation, the CMA has set out a list of proposals to reform the energy market and open up competition in its Energy market investigation summary report, which was published last month. The final report is expected to be published in June. However, concerns have already been raised that some of the reports proposals, ifadopted, could lead to the return of doorstep-sales. Barriers to switching The average customer could save more than 300 by switching deals The CMA is proposing to improve the regulatory and policy framework within which energy companies operate to bolster competition and drive down prices after Ofgem the energy regulator referred the energy market to the authority in the summer of 2014. Steve Playle, CTSI lead officer for doorstep selling, energy and climate change, has welcomed reform of the market. Most people dont switch tariffs, says Playle. There are some hardcore switchers who do so every year, but most consumers do not bother or are scared to do so, and they are [the ones] paying more. The competition has got better over the past few years, as more companies have come into the market but the Big Six do still have a large share of the market. He adds: Energy is so important to everyone, and it costs so much money. In my opinion it needs to be very closely regulated. Data concerns The CMA has proposed a range of measures for market reform, including an Ofgem-controlled database to list customers who have been on their providers default standard tariff for three years or more.This would allow rival suppliers to contact them with offers ofbetter deals. Its not yet clear what this database will look like, or how consumers will respond to their details being used in this way. The CMA notes that it will be subject to strict safeguards, and customers will be able to opt out at any time. However, Playle is concerned this could cause data protection issues, and fears the return of doorstep-selling. He explains: Normally, people are paid on commission to encourage energy switches and that makes me concerned over what would be said to consumers to make them switch. If someone has been on a bad deal an expensive tariff for many years, it suggests it could be an older resident, or someone vulnerable and potentially more susceptible to other types of marketing, such as scam emails. My biggest worry would be if this led to a return to doorstep-selling. Energy companies have got into difficulty with doorstep-sales in the past, and trading standards was involved in the criminal prosecution of SSE on this issue. Potentially, the CMAs proposal to introduce a database could encourage ruthless targeting of customers through mail marketing,with consumers bombarded by those selling gas and electricity, says Playle. STATE OF FLUX Another examination of the energy market is under way, with Ofgems consultation, The future of retail energy market regulation, published in December 2015. The consultation document proposes a move away from a prescriptive regulatory scheme towards a general principles approach, according to CTSIs consultation response, which was submitted in March 2016. It states: Moving away from prescriptive Price caps and comparisons rules towards a system of principles and selfregulation is, in the opinion of CTSI, going to dilute consumer protection even further. Consumers expect clarity from their energy provider and they expect proper and appropriate regulation. The consultation paper says that there will be an onus on suppliers to work out whats right and fair for consumers, rather than following a list of prescriptions from Ofgem. General principles can be ambiguous and, if applied and interpreted in different ways by different energy suppliers, this could be chaotic. The consultation is now closed and a decision from government is awaited. The risk that consumers will be bombarded by those selling gas and electricity Another proposal concerns the four million households in the UK that are on prepayment meters a group that includes some of the most vulnerable customers in the country. Yet, the cheapest tariffs available for these customers are around 300 more expensive than others. The CMA is proposing a price cap until the end of 2020, when it hopes that other reforming measures will reach this group. Four million households with prepayment meters are paying far more for gas and electricity than those without them, and it needs to be addressed, Playle says, welcoming any measures that could help to protect this group of energy users. They shouldnt be asked to pay more, particularly as it is generally people on lower incomes who have them. In addition, customers pay up front, so there is no chance of getting into bad debt. One of the proposals recommends strengthening the ability, incentives and transparency of third-party intermediaries, such as price comparison websites a key part in the process of switching. Playle says that these tools are useful, but using them is often more difficult than it should be, as a customers exact energy usage is not always made clearly available, and using this figure is the only way to get a really good comparison. Id love to see a standard document from the energy companies, which lays out clearly, in the same place, a customers energy usage. Comparing prices may get even more confusing if the four-tariff rule is scrapped, as the CMA is proposing. The rule limits the number of tariffs each supplier can offer. Though the rationale is to encourage competition and innovation in the market, it could prove harder for consumers to understand and compare tariffs particularly for those already less at ease in the realm of internet comparisons. There are issues with vulnerable people too, particularly elderly people. They may not have access to the internet or know how to use price comparison websites, Playle says, highlighting the importance of considering this group of people. Some people are scared of changing and they may need to be supported though the switching process. Voluntary organisations can do great work in this area by sitting down with the person, explaining the process, helping them to understand and make a decision about their gas and electric. The ultimate decision is, of course, the accountholders, but Id love to see more voluntary opportunities and organisations working in this area. It could help to improve competition and drive prices down. Market changes While the CMAs proposals are now being debated, Playle imagines the final report will contain few changes: What impact [the debates] have, we will see but I imagine the final report will look a lot like the interim proposals. Submissions in response to the CMAs provisional decision on remedies to the energy market are invited in writing by 7 April 2016 either by emailing energymarket@cma.gsi.gov.uk or by writing to: Project Manager, Energy Market Investigation, Competition and Markets Authority, Victoria House, Southampton Row, LondonWC1A4AD. The CMAs summary report is based on a survey of 7,000 domestic energy customers, as well as more than 200 submissions from energy suppliers, government bodies and consumer groups, and around 40 formal hearings. Credits Maeve Sinnott is a junior reporter at CPL Images: Tetra Images / Alamy To share this page, in the toolbar click on You might also like Brighter billing February 2016