CMA – the remedy reaction roundup

The Competition and Markets Authority (CMA) investigation of the energy market has entered a period of consultation following the publication of its proposed remedies in July.

Last week independent suppliers and consumer bodies largely welcomed the CMA’s initial findings, but many of the 18 proposed remedies have divided opinion.  Which side of the emerging arguments each of the big six will fall on has yet to be seen, but already the CMA has been given much food for thought.

Which remedies have raised the most concerns among the smaller players of the energy market?

Safeguard Regulated Tariff 

One of the most controversial and complex remedies is a transitional safeguard tariff designed to protect disengaged domestic and microbusiness customers from high standard variable tariffs. While protection for the large percentage of stagnant customers has been welcomed by many, some, such as the Confederation of British Industry has warned that such a proposal would go against the grain of the market and damage investor confidence.

Responses to this remedy are primarily questions about how this would work in practice. A key question is around the amount of “headroom” suppliers would be able to charge above operational costs, and the length of time such a tariff would be in place. The general consensus is a three year time period, reassessed every six months.

A consistent concern across submissions is that such a tariff would dis-encourage customers from switching further, the belief that many will be willing to pay slightly higher prices in order to remove the hassle of switching. Ideas to prevent this include running a governmental advertising campaign to encourage switching alongside the tariff, or providing an impartial database of tariffs, such as an Ofgem-run price comparison website.

Business supplier Haven Power has suggested that such a tariff should only apply to the big six, as independents’ customer bases are by their very nature made up of customers that have already actively switched. Others have called for it to be based on the number of vulnerable customers in a customer base.

Removal of four tariff cap

The remedy to remove the four tariff cap introduced by the Retail Market Review (RMR) has generally been received as a positive step, allowing more innovation in tariff offerings such as those targeted at specific customer groups.

Concerns however remain around the implications of removal – returning to an overly confusing marketplace that is likely to disengage customers further. Preventing this with a higher cap on tariffs as has been suggested by the CMA would have to be so high as to be pointless, First Utility has argued.

There are also concerns about how price comparison websites (pcw) could provide full market coverage if the market is flooded with tariffs. A solution that has been backed by several independents is an independent central repository where consumers can see all tariffs offered on the market without a competitive interest by the site, such as an Ofgem-run pcw.

An independent run price comparison website 

While this remedy has been seen by some, such as advisory firm PWC, as being difficult to implement and requiring additional resources to run, an independent price comparison site has been raised as a necessary element in many remedies, such as the removal of the four tariff cap.

An independent site is being seen as a missing but critical element in improving trust in the market, both for the domestic and microbusiness market, and rather than being a competitor to existing price comparison sites, instead providing a government endorsed benchmark for comparison use, especially amongst the elderly or vulnerable.

Prioritising prepayment meters 

Prepayment customers have long been recognised as being disadvantaged compared to direct debit customers, a finding backed up by the CMA. It recognised the technical constraints of traditional prepayment meters as being a major contributor to prepayment customers’ disengagement with the market. The proposed remedies are to prioritise prepayment meters in the smart meter rollout which is due to start next year, or to stop installing traditional meters in favour of smart ones.

This has received some support, noticeably from independent suppliers, but overall the conclusions many have drawn are that neither measures are without problems significant enough to actually disadvantage prepayment customers further.

Smart prepayment technology is still being tested, so is unlikely to be able to be run out earlier than expected without technical problems.

Prioritising the prepayment in the rollout would, according to the Data and Communications Company (DCC), increase costs and likely delay the rollout by bringing technical problems still to be solved to the fore. It would also result in prepayment customers being ‘guinea pigs’ for the learning curve period immediately post going live, bearing the brunt of problems yet to arise.

Independent supplier Good Energy has instead suggested an ‘accelerated mop-up’ of prepayment customers through an earlier deadline of April 2019, a year ahead of the rollout deadline.