Rich Hall, Infrastructure policy manager – Consumer Futures, at Citizens Advice, says the Competition and Markets Authority (CMA) understands the symptoms of the energy industry competition problem, but not the causes.
The Competition and Markets Authority (CMA) provisional findings and remedies are a curate’s egg. Almost everyone will find something in it to their taste, while other parts may make them want to wrinkle their noses up.
The great hope for the inquiry has always been that it would definitively put arguments over the health of the sector to bed, either by clearing the market of problems or by identifying and solving them. We may get neither.
The first of those potential outcomes – a clean bill of health – is not on the table. Though it broadly clears the upstream sector and the concept of vertical integration, the CMA concurs with the view, long argued by consumer representatives, that the retail market is not fully competitive and that this is causing material consumer detriment. The second of those potential outcomes – a diagnosis and cure – remains possible, but uncertain.
In its work thus far, CMA has diagnosed symptoms much better than causes. So while it ably demonstrates that disengagement exists, it provides a more limited understanding of why this is. This makes it hard to work through the logic of why it thinks that its proposed remedies would be effective.
For example, it proposes a combination of information remedies and nudges – price comparison and prompts – to engage domestic consumers, combined with a transitional backstop tariff to protect consumers while those measures work their magic. But information and nudges has been tried before. Both were core elements of Ofgem’s initial Energy Supply Probe and its subsequent Retail Market Review – and it did not result in widespread consumer engagement, particularly among vulnerable consumers.
The CMA does not really explain why we should expect those tactics to be third time lucky. The transitional safeguard tariff is portrayed as a temporary measure until the wider problem of consumer disengagement is resolved. But no criteria are given for how or when a judgement would be reached on when it should be lifted. How will we know if it worked? What does success look like?
How will we know if it worked? What does success look like?
The CMA deserves considerable credit for the bravery and ambition of its transitional tariff proposals, although their success criteria are unclear. In their current form, they would apply to the majority of consumers so there is some risk of unintended consequences; distorting the market, protecting those who do not need protection and have simply made a rational decision not to engage in the market, or locking in windfall gains or losses if the price cap is badly set.
Citizens Advice has argued for applying a safety net to a smaller tranche of customers by either extending the Warm Home Discount to cover those eligible for cold-weather payments, or targeting the transitional safeguard tariff only at those groups. This is because we want the safety net to benefit those who are least able to pay or switch. We would prefer a subset of those on default tariffs to get a bigger benefit, rather than all those on default tariffs getting a smaller benefit. This narrower approach would target greater help to those in genuine need and mitigate the risks that would arise if you took the majority of the population out of the market.
Elsewhere, there is familiar ground in many remedies.
If the CMA can provide the impetus to finally settle constantly disputed territory, such as locational charging, or reinvigorate stalled programmes such as Nexus or the delivery of half-hourly settlement, this is welcome.
While we share the commonly held view that industry code governance is overdue for reform, we are less convinced that the core problem is that Ofgem lacks powers to project-manage industry modifications than the CMA seems to be. The regulator already has significant tools in its locker to bash heads together and get things moving under current rules, if it so chooses. Rather than increase the regulator’s ability to micro-manage the codes, we would prefer to see a change of emphasis within the codes to open up their intelligibility,
accessibility and relevance to a wider range of stakeholders.
Front and centre would be the introduction of a consumer code objective and a requirement for modification reports to include an assessment of the impact of the proposed change on end consumers. We think this could helpfully broaden industry change processes away from simply considering the IT and systems impacts of proposed code modifications to think about what they mean for people, for consumers. In a sector with a generally poor track record of customer service, this re-orientation to better consider customer outcomes is overdue.
In a sector with a generally poor track record of customer service, this re-orientation to better consider customer outcomes is overdue.
Value for money
Elsewhere, we are excited about the potential for the CMA to both improve the value for money that consumers get from the delivery of government policies, and to better report and communicate these costs. The Department of Energy and Climate Change (Decc) has a real problem with keeping a grip on policy costs. In just eight months between November 2014 and July 2015 the estimated expenditure under the Levy Control Framework in 2020/21 ballooned from £6.25 billion to £9.1 billion (in 2011/12 prices). Decc
also either lacks, or is unable to communicate, a robust underlying philosophy for how it divides up funding within policy instruments or prioritises between different policy instruments.
If the CMA can bring greater discipline and transparency to government spending on energy policy, that could bring significant enduring benefits to consumers. The CMA is on the right track in each of these areas – it just needs to push them to conclusion.