Analysis: No comparison

Battle lines have been drawn between the competition watchdog and industry stakeholders over price comparison websites in the future energy landscape. Saffron Johnson reports.

Price comparison websites (PCWs) allow consumers to sort through a complex energy market of more than 40 suppliers and many more tariffs. But critics argue that they are more marketing sites and do not have consumers’ best interests at heart.

After a two-year investigation into the energy market, the Competition and Markets Authority (CMA) decided that PCWs are a vital tool to increase competition and engagement in the market. The remedies it came up with for PCWs have been slammed by a group of independent suppliers and the chair of the Energy and Climate Change select committee, Angus MacNeil, who said that use of them risks “eroding consumer trust” even further.

So, while most agree that consumers are not engaging in the market as much as they do with other sectors, are price comparison sites the solution?

GB Energy Supply partnered with Co-operative Energy, Bulb, Go Effortless Energy, So Energy and Zog Energy to campaign against the CMA remedy that releases PCWs from their obligation to show the whole of the market. Removal of this requirement would allow PCWs to show only commission-paying suppliers’ deals. The campaigners wrote a letter to then energy secretary Amber Rudd highlighting their concerns that the remedy will lead to higher bills “as the commission charged by comparison sites is transferred straight to people’s bills”.

They also surveyed MPs and claimed that 79 per cent of them disagreed with the CMA on this point; 59 per cent of MPs agreed that allowing comparison sites to show only deals they got paid commission on would lead to increased bills.

GB Energy Supply founder Luke Watson says: “The CMA’s decision to remove the whole-of-market requirement is completely illogical and totally at odds with government policy to promote competition and encourage switching.

“The CMA is essentially giving comparison sites carte blanche to seek out profits rather than the best energy deals for people.”

Comparison site thebigdeal.com has been outspoken about the potential detriment of the CMA remedy and accuses the comparison sites of “hoodwinking the CMA” and helping the big six exploit customers. Founder Will Hodson says: “Millions of non-switching Britons live at the mercy of their energy supplier. Few suspect their loyalty is taxed at £300 a year.

“What is even more depressing is that price comparison sites are helping the big six to exploit loyal customers. The big six sneak their best deals on to comparison sites as ‘exclusives’ while the sites refuse to allow existing loyal customers to take them. This practice is a disgrace and government must intervene to stop it.”

Thebigdeal.com also tells Utility Week the CMA “has a simple – and controversial – view on energy switching: what’s good for comparison sites is good for consumers. We disagree.”

But the chair of the CMA investigation, Roger Witcomb, tells Utility Week the organisation stands by his belief in comparison sites. “It wasn’t a difficult decision,” he says. “It’s a very clear way of making the market work better.

“It’s entirely understandable that the people who were getting free access to price comparison sites don’t much like that [the remedy].”

Energy Helpline co-founder Mark Todd says using PCWs is “common sense” for consumers and that the sites are generally more trusted than suppliers. He adds: “Why would anyone want to go to each individual supplier?

“I think it’s a really positive relationship between the comparison services and the suppliers who want to acquire new customers. If a supplier doesn’t want to acquire new customers, then they’re not going to be supportive of price comparison sites, but if a supplier wants to get new customers its perfect, because there are two to three million people every year switching with comparison services.”

Todd also highlights that in no other sector do PCWs “show the whole of the market by default”.

One of the largest comparison sites, Uswitch, tells Utility Week that PCWs have been a “fundamental part” of making energy retail work, adding that it is “not that surprising that the CMA wants to expand that success”.

The company’s head of regulation, Richard Neudegg, says putting weight on comparison to help facilitate competitive pressure and exclusive deals “is just a pragmatic way to make sure that we see more consumers access cheaper pricing”.

Uswitch also has no concerns about the CMA’s suggestion to remove the whole of market requirement, because “consumers understand that prices shown are not whole of market and differ between different sites, but there still seems to be a level of trust”.

The future role of PCWs in the energy market hangs in the balance, pending a decision from Ofgem on the whole-of-market requirement. But there is certainly space for them as a switching catalyst for consumers who find it hard to understand the sector. The CMA has now launched a probe into comparison tools such as websites and smartphone apps, focusing on how to maximise the potential benefits to consumers and break down barriers to their effective operation. This additional examination is precisely what the industry needs to shed some light on the potential of price comparison sites.