Littlechild: CMA must investigate unintended consequences of market interventions

The Competition and Markets Authority (CMA) inquiry into the energy retail market should investigate the unintended consequences of regulatory interventions, according to a group of senior former regulators led by Professor Stephen Littlechild.

In a letter to the CMA, the five former regulators argue that regulatory interventions in the market may increase customer and supplier costs and led to weaker competition.

The letter says: “The investigation should examine the effect of regulatory interventions on price levels and price dispersion, customer switching, customer choice and the products offered by suppliers, innovation, supplier profitability, new entry etc.”

The former regulators welcome the CMA’s consideration of social objectives, and raise the question of whether Ofgem’s retail market review has limited the tariffs available to vulnerable customers.

“We therefore urge the CMA to investigate the reasons for the withdrawal of such tariffs, and to consider whether such outcomes are consistent with promoting competition and with meeting social objectives,” the letter says.

The letter calls on the CMA to clarify Ofgem’s role in setting prices: “It would be helpful to market participants, customers, those concerned with public policy generally, and not least to Ofgem itself, if the CMA were to consider whether, and if so how far, Ofgem has a statutory locus (a) to decide what are “fair” prices and (b) to impose them via licence conditions, in circumstances where such measures can be expected to affect the extent or nature of retail competition, and may benefit some customers only at the expense of others.”

The letter is signed by:

• Stephen Littlechild, Director General of Electricity Supply and Head of the Office of Electricity Regulation (Offer) 1989-1998;
• Sir Callum McCarthy, Chairman and Chief Executive of Ofgem and the Gas and Electricity Markets Authority (GEMA) 1998-2003;
• Eileen Marshall CBE, Director of Regulation and Business Affairs, Offer 1989-1994; Chief Economic Adviser and later Deputy Director General of Ofgas 1994-1999; Managing Director, Ofgem and Executive Director, GEMA 1999-2003;
• Stephen Smith, senior executive positions at Ofgem 1999-2002 and 2003–2010 including Managing Director, Markets, 2004-2007 and Executive Board Member, GEMA 2004- 2010;
• Clare Spottiswoode CBE, Director General of Gas Supply and Head of the Office of Gas Regulation (Ofgas) 1993–1998.  

It can be read in full here.