Ovo blames big six for market growth slowdown

Independent supplier Ovo Energy has told the Competition and Markets Authority (CMA) that a “strategy change" by the big six suppliers has slowed its growth in the market.

Since October 2014 independent suppliers have been winning less market share than they did during the preceding year, which Ovo said was due to the introduction of ‘loss-leading acquisition tariffs’ by the big six.

Ovo said the pricing strategy of the big six changed between October 2014 and March 2015 with larger differences in price between standard-variable pricing and discounted and promotional pricing emerging.

Ovo said the difference of 25 per cent between standard variable and fixed-term tariffs is disproportionate to the 6 to 7 per cent found by Ofgem to be the difference in the cost of providing the services.  It said the cheaper tariffs were being subsidised by low wholesale prices which are not being passed on to customers. 

Before this period, for the year preceeding October 2014, Ovo Energy said large energy companies had “price consistency” and had “withdrawn from the part of the retail market where tariffs were competitively priced”, which led to a period of considerable growth for independent suppliers.

Ovo said the change was the result of the lack of impact of the Retail Market Review (RMR) and the announcement of the CMA market investigation in early 2014.

Focussing on average profitability hid the variance between loss-leading tariffs and expensive variable tariffs, a practise amongst the big six Ovo called for to be changed.

It said cost reflective tariffs would lead to greater price consistency, suppliers lowering their costs and increased customer participation.

Ovo also said Ofgem “lacked the ambition” to address transgressions made by energy companies, and would be in favour of principles-based regulation rather than rules-based regulation, but that this would require a cultural change in both the industry and by Ofgem.

Independent supplier First Utility told the CMA in its hearing that independent supplier’s growth was also being limited by cross-subsidisation of short-term attractive acquisition tariffs offered by the big six through white label branding.