Energy suppliers slam CMA competition concerns

The UK’s largest energy suppliers have slammed concerns that competition in the energy market is not working as the Competition and Markets Authority continues its investigation into the sector.

Centrica said in its latest submission to the CMA that they “do not accept” key parts of the CMA’s analysis, while SSE branded the authority’s estimates as inaccurate and “misleading”.

Centrica confronted concerns that it could be profiteering at the expense of disengaged customers by arguing that its margins have not increased and do not rely on loss-leading fixed tariffs which are offset by inflated variable deals.

“Using our own actual costs, our margins are relatively stable from 2009 to now. Indeed, our average profit on a dual fuel bill has actually fallen from £54 (2009) to £42 (2014) in this period,” the submission said.

In its initial report on the ongoing probe the CMA said in March that the big six energy suppliers make higher margins on standard variable tariffs. These are more likely to be used by so-called ‘sticky customers’ who do not shop around for their energy deals and subsequently pay above the odds compared to those who switch to cheaper offerings, according to early findings from the CMA.

But both Centrica and SSE claim that profit margins are not unreasonable, with SSE pointing out that by the CMA’s own analysis, average margins on sales to domestic customers were only 3.3 per cent between 2009 and 2013.

Centrica added that any differential between its standard variable and fixed deals “is a result of the pattern of wholesale prices and how they flow through into the distinctly different risk offerings of the products.”

“This differential has been significantly amplified by the fall in wholesale prices over the last year. As the forward curve stabilises (as is happening to some degree) this differential will diminish,” Centrica added.

Although the CMA said 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, SSE has countered the claims by insisting the estimates are “inaccurate and misleading”.

“In fact, the gains from external switching are somewhere closer to £39 to £130 (for median fuel customers) and the gains from changing both supplier and tariff type lie somewhere around £76 to £117 (for median dual fuel customers),” the supplier said.

Furthermore, both energy suppliers have insisted that the market is competitive and benefits from strong customer engagement.

“The CMA’s own survey confirms that 89 per cent of customers know they can switch supplier and nearly half of all customers have either switched or considered switching in the past three years.

Moreover, 73 per cent of customers are satisfied with their current supplier and of those who know it is possible to switch supplier or change payment method, 70 per cent are confident that they are on the right deal for them,” Centrica said.

“Almost 90 per cent of SSE’s current electricity customers have meaningfully engaged – by switching externally or internally, signing up to another SSE product, changing their payment method and/or changing their meters – in the last 10 years,” SSE added.

Both suppliers said that evidence of increasing new market entrants and third party players, such as switching sites, show that the competitive and engages well with customers.

“We do not see evidence of unengaged or dissatisfied customers,” Centrica said.