CMA Final Remedies :Tough or Tepid?
United Kingdom July 4 2016
In the excitement of last week's EU Referendum, you may have missed the Competition and Markets Authority's final report on its two-year investigation into the energy market.
It largely confirms the CMA's provisional findings last July and its provisional remedies published in March. The main differences are:
After lobbying from the 'Big Six' energy companies, who claimed the figure was inaccurate, the CMA has changed its provisional conclusion that the Big Six overcharged their customers by £1.7bn a year, instead ruling that customers could have saved £1.4bn in a fully competitive market.
The removal of the 'whole of market' requirement on price comparison websites, so that they need only display tariffs of suppliers who have paid commission. Understandably, the smaller suppliers (who do not pay commission to websites) are not happy with this.
The CMA has dropped its recommendation that DECC finalise proposals for Contracts for Difference budgets and the allocation of technologies to pots at least one year ahead of an auction. DECC had objected to this, saying it would have resulted in them setting a conservative budget instead of having the flexibility to increase the budget closer to the auction round, as happened in the last round.
For gas settlement, the CMA recommends that Ofgem ensures the implementation of Project Nexus by 1 February 2017 or as soon as possible after that date – this timetable has slipped since the provisional remedies, which proposed an implementation date of 1 October 2016.
Otherwise, all the remedies listed in our article, CMA's Provisional Energy Market Remedies, still stand. These include:
A new secure database, operated by Ofgem, containing details of customers who have been on their energy supplier's default tariff for three years or longer, which competing suppliers can use to contact them with cheaper deals; and
A price cap on prepayment tariffs, which will remain in place until "…the introduction of smart meters removes the limitations on such customers accessing better deals".
When the energy market investigation was initially announced, the industry feared it would lead to a break up of the 'Big Six' and the end of vertical integration, following a series of major rises in energy bills in 2012 and 2013 and Labour's call for a price freeze in summer 2014. However, the CMA's investigation went on to focus on low consumer awareness of their ability to switch suppliers (particularly amongst consumers on standard variable tariffs and pre-payment meter customers) and aspects of the regulatory framework, including restrictions on the number of different tariffs that suppliers can offer. In particular, the CMA noted that two Ofgem initiatives (the 'four tariff' rule and the prohibition on retail price discrimination) contributed to low consumer engagement and therefore needed to be addressed.
Interestingly, one of the CMA panel members ( Martin Cave) did not think that the remedies go far enough and suggested that a "short-term price cap covering a substantially larger number of customers" would "reset the market".
The CMA will shortly publish a timetable for the implementation of the remedies package.
Addleshaw Goddard LLP - Bruce Kilpatrick, Rona Bar-Isaac, Richard Goodfellow, John Emerton and Guy Winter
Office of Gas and Electricity Markets
Proposed Leasehold Reforms And The Inclusion Of Retirement Properties In The Abolition Of Ground Rents *
Tiktok faces lawsuit for violating children's data privacy law in the UK *
ICO publishes response to Government's announcement on extension for personal data flows *
A dose of reality in requiring employees to vaccinate *
John Mehrzad QC successful in extension of springboard principle *
Competition Markets Authority (CMA) proposes shake-up to spur competition in the UK energy market *
CMA's Provisional Energy Market remedies *
The CMA energy market investigation: a summary of its provisional findings *
Gee Yung Loong
McAfee Inc
"I think it is a great service, continue the good work."