CMA energy probe uncovers household overcharging

The Competition and Markets Authority has uncovered significant evidence that consumers have been overcharged by their energy companies, and will investigate whether Ofgem’s regulatory codes have helped to stifle competition.

Speaking out for the first time since the wide-ranging probe began, the CMA said its initial findings suggest that over 95 per cent of dual fuel energy customers could have saved between £158 to £234 per year by switching from a big six standard variable tariff.

The higher tariff level also allow the companies to extract greater revenue from their customers, the CMA’s initial findings show.

Revenue from standard variable tariffs was found to be 12 per cent higher than average revenue from other big six electricity tariffs and 13 per cent higher for gas.

The findings confirm mounting suspicions that so called ‘sticky customers’ who opt not to switch tariff are paying above the odds for their energy, stoking the political furore over the energy market ahead of the May general election.

But the CMA’s initial findings also reveal that the regulatory codes put in place by Ofgem may help to stifle competition in the market.

“Several parties have submitted to us that elements of the codes system risk affecting competition either through distorting incentives, increasing barriers to entry or stifling innovation,” the CMA report said.

The CMA said it will investigate firstly whether Ofgem’s electricity regulation codes pose a barrier to entry, and secondly whether they stifle pro-competitive innovation and change.

Concern over the role of regulation in the market extends into the wholesale electricity market, with the CMA set to alter its investigation to include a probe into imbalance price reforms overcompensating generators in light of the capacity market, and the absence of locational pricing of constraints and losses which “may distort competition”.

Shadow energy minister for the Labour party Caroline Flint said today’s report confirms “that Britain’s energy market is broken” and that “radical action” needs to be taken. The party reaffirmed its pledge to freeze retail energy prices for households if it comes to power in May.

The CMA is eager to stress that its initial findings are not conclusive and that further work with be undertaken with the industry as part of the ongoing investigation which is due to last much of 2015.

Market participants have until 5pm on Wednesday 18 March 2015 to comment on the initial findings.