CMA Remedies: The industry’s mixed reaction

There is much disparity in the industry’s responses to the proposed remedies for the energy retail market. Now it’s up to the CMA to consider those views. Mathew Beech and Saffron Johnson report.

Last week the Competition and Markets Authority (CMA) published 65 responses from the industry to its provisional remedies to increase the competitiveness of the energy retail market. Reaction has been mixed, with suppliers clashing over the potential impact of the remedies, such as the consumer database, the removal of the four-tariff cap element of the retail market review (RMR), alterations to the confidence code for price comparison websites (PCWs), and even the timescale. However, there is one area where suppliers agree: the customer detriment figure of £1.7 billion. The consensus is that this figure has been derived from “flawed” methodology.

Customer detriment

The big six, along with Ovo, dispute the £1.7 billion figure, claiming it is unsound. Centrica calls the analysis behind the figure “seriously flawed”; EDF says it is “not robust”; Eon states it “cannot be relied upon”, while RWE, SSE and Scottish Power have also expressed dissatisfaction.

Their criticism stems from the fact that the CMA’s methodology for its “direct” analysis used First Utility’s and Ovo’s retail selling prices as benchmarks. The suppliers claim the differences in scale between First Utility and Ovo and the larger suppliers mean long-term hedging is not taken into account and there is a failure to acknowledge that a like-for-like comparison is not fair representation.

Timescales

Co-op Energy and First Utility back the swift introduction of the remedies, with the former calling for “speedier changes” than the CMA sets out. They also raise concerns over whether Ofgem will be able to keep up with the rate of change to the market. First Utility calls for an “alternative time-line” for the implementation of the remedies, with a phased introduction of the changes to the simpler aspects of RMR within the first 12 months after the final remedies are published. Further changes to more complex elements of the market should then follow. SSE takes the opposite stance, claiming the CMA’s proposed timeline is too quick for the range of measures it wants to introduce.

Database security

One of the CMA’s potential remedies is the creation of a customer database, accessible by all suppliers, that holds details of customers who have not switched tariff within the past three years. SSE, Scottish Power, EDF Energy and Eon say their customers have expressed concerns over the privacy of this data, adding “this should not be underestimated”. There are fears that customers on this database could receive a barrage of marketing material. Ofgem sought to allay these concerns, saying it proposed a trial of the database before it went fully operational, to demonstrate its security and prevent mass marketing.

RMR removal

Scottish Power and SSE are joined by Utility Warehouse and Utilita in their support for the removal of elements of the RMR reforms, including the scrapping of the four-tariff cap. SSE states the removal will enable inno¬vation on tariffs and greater scope for companies to “differentiate themselves”. Co-op Energy and First Utility again took an opposing stance, with the former stating there is a “risk of a return to a profusion of multiple tariffs and the consequential customer confusion”.

Price comparison websites

The CMA set out plans to allow PCWs to negotiate exclusive deals with suppliers, which they can then offer to consumers. Ovo says this creates a “power shift”, with the PCWs, rather than the suppliers, having control in terms of the trust in customer relationships, and that disengaged customers, who remain unlikely to switch, “may be over-charged to an even greater extent”.

Co-op also slams the move, stating it will “reduce transparency” in the sector, as certain deals are pushed and promoted ahead of others, and the requirement to present a full market view to customers is removed. The big six, however, support the plans, saying that, with the removal of the tariff cap, sticking with the whole of market approach could be “confusing”.

It is now up to the CMA to go through the 65 responses, assess and consider the different, and often conflicting views, before publishing its final set of remedies. Come June, we will know how much it has taken on board.