Big six versus the CMA: suppliers hit back

In their final written submissions before the summer interim report the big six have almost unanimously slammed the Competition and Market Authority’s initial findings that competition in the retail energy market is not working.

The suppliers agree with the CMA’s clean bill of health for wholesale markets, vertical integration and its focus on innovation stifling regulation.

But the big six have hit back at suggestions that they profiteer at the expense of disengaged customers, denying they rake in higher profits from their standard variable tariffs (SVTs).

Centrica
Centrica said its experience “does not support the CMA’s initial views”, saying customers are adequately engaged in the market and satisfied with their supplier. Meanwhile, its profit margins have not increased dramatically since 2009, and do not skew profitability towards SVTs, it said.

– “The CMA’s own survey confirms that 89 per cent of customers know they can switch supplier and nearly half of all customers have either switched or considered switching in the past three years.”
– “Moreover, 73 per cent of customers are satisfied with their current supplier and of those who know it is possible to switch supplier or change payment method, 70 per cent are confident that they are on the right deal for them.”
– “Using our own actual costs, our margins are relatively stable from 2009 to now. Indeed, our average profit on a dual fuel bill has actually fallen from £54 (2009) to £42 (2014) in this period.”
– “The differential between fixed term contracts and SVTs seen today is a result of the pattern of wholesale prices and how they flow through into the distinctly different risk offerings of the products. This differential has been significantly amplified by the fall in wholesale prices over the last year. As the forward curve stabilises (as is happening to some degree) this differential will diminish.”

SSE
SSE echoed Centrica’s claim that customers are engaged – both in domestic and non-domestic markets and that the process of switching is not considered “onerous”. Furthermore, the savings customers can make by switching have been overplayed, SSE said.

– “Almost 90 per cent of SSE’s current electricity customers have meaningfully engaged… in the last 10 years.”
– “Competition in the non-domestic segment is fierce, with 33 active electricity suppliers and 35 active gas suppliers. SME and microbusiness customers face no material barriers to engaging in the market, as evidenced by the high rates of switching.”
– “The CMA’s survey indicates that 67 per cent of customers who have switched previously are likely to switch again, suggesting that switching is not onerous or off-putting. Market developments already in train… are making switching even easier.”
– “The gains from external switching are somewhere closer to £39 to £130 (for median fuel customers) and the gains from changing both supplier and tariff type lie somewhere around £76 to £117 (for median dual fuel customers).”

Scottish Power
Iberdrola-owned Scottish Power said that its customers are “intermittently engaged” but that any signs of consumer inactivity should be “seen in perspective”. The supplier also suggested a return of the much-criticised doorstep sales.

– “In Scottish Power’s SVT customer base, around half of those paying by credit or direct debit have been on a product within the last two years. We would therefore characterise much of the SVT population as intermittently engaged.”
– “There is evidence to suggest that the energy market is similar to many other competitive consumer product and service markets in regard to switching and price dispersion.”
– “It would be useful for the CMA to consider whether the use of face-to-face sales techniques could play a role in enhancing competition for consumers who are currently hard to reach via online or telephone sales channels, while ensuring appropriate consumer protection.”

EDF Energy
EDF Energy bucked the trend of other big six suppliers admitting that disengaged customers impact on the competition of the market. But it insisted that its SVT and fixed rate deals do not play to different strategies. The supplier also criticised Ofgem’s “misleading” supply market indicator.

– “The fact that there is a reasonably large cohort of inactive (disengaged) customers, corresponding, to a greater or lesser extent, to customers on standard variable tariffs in certain geographic areas (for a given supplier) or for a particular fuel, impacts on the competitive dynamic.”
– “EDF Energy does not have a retail strategy with respect to SVTs that is independent and/or divorced from its fixed-rate strategy; rather, the two are interwoven.”
– “We have significant misgivings around Ofgem’s introduction of the Supply Market Indicator… it has been consistently inaccurate, in particular by overstating revenues and therefore giving a misleading impression of supplier profitability.”

Eon
Eon disputed the CMA’s ‘rocket and feather’ concerns in the pricing of retail energy. They also challenged the idea that consumers on a SVT are not engaged. However, the supplier did admit that competition has been stifled by over-regulation.

– “Eon does not generally consider that prices respond more quickly to increases in wholesale costs than to reductions… In our experience, being the first supplier to respond to rising costs and increase prices carries a heavy price in terms of customer response and losses, and criticism by the media and other stakeholders.”
– “The CMA customer survey shows that most people are aware they can switch and a great number indicated that they were satisfied with their current supplier. We would suggest that just because a customer is on an SVT, it does not mean either that they are not engaged or that they are not active.”
– “The layering of regulation upon regulation impacts competition and stifles innovation in the market.”

RWE Npower
Npower defended the discounted rates offered through its fixed deal as compared to its SVT saying that price can only be offered if customers commit to a “sufficient” period of time. While the supplier agreed that reducing the number of codes may help, political intervention is also driving inefficiency.

– “Competition drives RWE Npower to offer discounts to acquire and retain customers and these discounts can only be offered if a sufficient number of customers stay with RWE Npower for a sufficient period of time.”
– “Some of the retail codes could be made simpler, but only if there were changes to the underlying drivers of complexity. These drivers include the significant levels of political and regulatory intervention in retail arrangements, which in RWE’s view has at times led to inefficient and unnecessarily complex outcomes.”