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CMA Announcement on Energy Market Reform
The Competition and Markets Authority (CMA) today announced its proposals to reform the energy market, open up competition and help customers get a better deal following the conclusions from its investigation in June.
The remedies proposed include a range of measures aimed directly at customers (including microbusinesses) to encourage a greater number to benefit from switching to more competitively priced deals. One of these is the creation of an Ofgem-controlled database of customers who have been on the suppliers default standard variable tariff for more than 3 years. Rival suppliers will be able to access this data for marketing purposes. The CMA is also proposing a transitional price control to protect customers on prepayment meters (a group which contains some of the most vulnerable customers) until 2020 by which time they will benefit from other future developments like the roll-out of smart meters.
Extensive measures to improve the relationship between Ofgem, the Department of Energy and Climate Change (DECC) and the industry have been made so that decisions are made efficiently and on the basis of readily available accurate information, with the impact on consumers clearly set out. These measures include requiring the largest suppliers to provide fuller information on their financial performance, and increased public consultation by DECC on policy decisions that will impact consumer prices in the future. The CMA also proposes that the system of self-regulation of industry codes needs to change, so that Ofgem is in a better position to ensure that measures that benefit consumers are introduced promptly.
Energy and climate policies were high on the agenda as they are expected to make up 37% of the household cost of electricity by 2020. The CMA is putting measures in place to address problems with the wholesale electricity market and the broader regulatory framework. The aim is to create greater clarity and transparency around decisions that affect the future of the energy sector, and the creation of policy and a regulatory structure that is fit for this purpose.
Other measures proposed include:
• Strengthening the ability and incentives for third party intermediaries such as price comparison websites (PCWs) to help customers find better deals.
• Removing the 4 tariff rule to enable suppliers and PCWs to offer tariffs designed for certain customer groups.
• Removing restrictions on the ability of new suppliers to compete for prepayment customers and reducing barriers such as debt issues that make it difficult for such customers to switch.
• Introducing a requirement that households on non-Economy 7 restricted meters are allowed to switch to cheaper single-rate tariffs without a meter replacement.
• Helping microbusinesses through improved price transparency, tackling ‘rollover’ contracts with greater notice periods and ending termination fees.
• Ensuring that the contracts for difference process where the government supports investment in low carbon generation is carried out transparently so that the impact on customer bills is assessed beforehand.
• Ensuring that both electricity and gas settlement processes are reformed to lower costs to consumers by enabling more accurate measurement of consumption and more efficient supply – and to enable the full benefit of smart meters to be realised.
• Introducing a locational pricing system for transmission losses incurred when transporting electricity to reduce the overall cost to customers.
Melanie Kendall Reid, Compliance Director, Carbon2018 Limited commented:
“Whilst the intention of the CMA is good, to encourage customers to get a better deal, I am concerned about the proposed Ofgem controlled database. Its purpose is to allow rival suppliers to contact customers who have been stuck on unfavourable contracts (their supplier’s default variable tariff) for 3 years or more with better deals. The problem is just like with PPI customers will end up getting lots of nuisance calls, which will tarnish the industry reputation. Plus in my experience there are many suppliers out there who are very competitive on price, but lack customer service. My advice would therefore be to do your homework before switching.”