Leader:utilities are still a political football

“It ain’t broke, so don’t fix it.” That’s the broad thrust of the evidence the major energy companies gave to the Competition and Markets Authority (CMA), according to the hearing summaries published this week. While the evidence varied in detail, most companies agreed on the major points: there is no abuse of power in the wholesale market; energy companies are making a reasonable return, not profiteering; and retail market reform (RMR) and other regulatory interventions have distorted the market and stifled innovation.

Chances are the CMA will agree with them. The noises coming out of the body have been conciliatory and investors, usually adept readers of the wind, are already relaxing as the prospect of a forced break-up dwindles. As we reported last week, a recent note from Citigroup said: “Market concerns for a possible break up have diminished to near zero. Of bigger interest in our opinion is any remedies imposed on the number, level and flexibility of tariffs and the discrepancies in profitability between customers that have never switched and those which have shopped around.”

So expect RMR to be on the table, along with consideration of standard variable tariffs and measures to protect “sticky” customers.

There’s just one problem: customers still don’t trust energy companies, and a CMA remedy that essentially preserves the status quo isn’t going to change that. So it’s over to the companies to find a market solution – and indeed, some already are. Eon is setting the pace, with its early announcement of plans to split the global business in two, keeping the Eon brand for the renewables and customer-facing arm. Centrica’s long-awaited strategy announcement this summer will provide its answer to the dilemma. Both companies were first movers on smart meters, suggesting they see smart technology as the key to detoxifying the customer relationship.

The CMA recommendations, expected shortly, may well be less drastic than originally hoped or feared. But the energy market is transforming anyway – and not just among the big six. Reports this week that National Grid’s Steve Holliday will end his successful tenure next week open the door to a strategy shift, adding weight to speculation that it plans to sell its metering business, and perhaps even its gas distribution networks.

Still, any hopes that, post-election and post-CMA, the energy market would lose its status as a political football were dashed this week. Amber Rudd’s headline-grabbing early closure of the RO for onshore wind may have little immediate consequence because of sweeping exemptions, but it shows this government is only too willing to play energy policy to the gallery. Plus ca change.