Interview: Roger Witcomb, energy panel chair, CMA
In a tiny room, within the glassy central London offices of the Competition and Markets Authority, Utility Week sat down to discuss the largest study of the energy market since privatisation.
The probe has faced staunch criticism from all angles, for taking too long, for costing too much, for being too soft on the big energy companies, and for failing to do enough to protect consumers who have been paying over the odds for their electricity and gas for years.
Taking his seat, the investigation’s chair Roger Witcomb is eager to defend the work of his panel of experts, which spent two years and £5 million poring over evidence. The outcome was a series of recommendations, including a temporary prepayment price cap, the scrapping of Ofgem’s four-tariff cap, and the creation of an open database of customer details.
Topping off the set of remedies is the controversial plan to remove the whole of market requirement for price comparison websites.
News, in provisional reports through 2016, of the CMA’s intentions to introduce these measures drew attacks from detractors. These did not disappear with the final rulings in June this year and as a lengthy process of implementation, including trialling and testing of solution, goes ahead, they are likely to well up again and again.
One reason for this is that the energy sector is changing fast – so much so that energy market players unhappy with the CMA’s approach say that it’s slow moving investigation is based on outdated evidence. Since it started work, the number of suppliers in the market has soared from 25 to more than 40, wholesale prices have fallen drastically, and Ofgem is increasingly bearing its teeth, slapping hefty fines on suppliers who fail their customers.
Such changes and improvements in the market did not go unnoticed by the CMA but Witcomb warns: “There is still plenty that needs sorting out”.
The remedy setting our plans for a database of customers who have been on a standard variable tariff (SVT) for three years or more has attracted vitriol. The plan is for suppliers to have access to it and target marketing at these customers, hopefully encouraging them to switch to a better deal. Critics claim this will lead to mass junk mailing and end up confusing these disengaged customers even further.
Witcomb strongly defends the plan, claiming it will prove to be a productive way to re-engage with these customers. “We discovered that if you’re measuring lack of engagement, one of the main contributors is lack of internet access. If there is no internet access, a letter seems the most effective way.
“Obliging suppliers to disgorge details of their most profitable customers to a competitor is quite a beefy remedy and we expect a certain amount of pushback.”
He adds that it has the bonus of being perceived as a “non-threatening way of communication” and argues that data security is “assumed” safe with Ofgem.
However, Witcomb does concede that supplier numbers have increased dramatically since the remedy was first set out, so there could be an issue with too many companies sending out letters. He places responsibility for ensuring this doesn’t happen squarely with the regulator. “Clearly the details need to be worked out… which is why we have said this is a matter for Ofgem.”
Controversy has also followed the plan to remove the “whole of market” requirement from price comparison sites. Independent suppliers have slammed the move, saying they will no longer have their tariffs shown unless they pay.
Witcomb hits back: “It is entirely understandable that the people who were getting free access to price comparison sites don’t much like it. They are not a public service, people need to realise they are retailers.”
“It was something that we felt very strongly about. It wasn’t a difficult decision.”
The obligation on price comparison websites to show the whole of the market came as part of Ofgem’s package of retail market reforms alongside the four-tariff rule. Leaning forward in his seat, Witcomb says that over the past few years, “a lot of restrictions had unintended and unfortunate consequences, and that was one of them”.
Neither does the chair buy the argument that removing the four-tariff cap will increase complexity. He says Ofgem agrees with him that the four-tariff rule is “an idea whose time has passed”.
In the longer term, code governance and clarifying the relationship between Ofgem and the new Department for Business Energy and Industrial Strategy will be a “game changer”. Code governance will help to get the industry to a place where it can respond to changes in technology and market conditions – improving flexibility, Witcomb is keen to note, is an important step.
There were remedies for business customers too. Suppliers will have to be transparent publishing lists of tariffs and business customers won’t automatically be rolled onto longer contracts that they can’t get out of.
But Witcomb thinks the remedy that will have the biggest impact will be the price cap for prepayment meter customers, which will be in place until the full smart meter rollout is completed in 2020.
“Clearly, the price cap will have the most direct and measurable effect,” he says proudly. “It is nice to be able to hit a particular part of the detriment hard and predictably, in the knowledge that it will fall away of its own accord.”
But he does admit there is a sense of regret that this remedy was actioned, because the CMA “tends not to go for price caps”.
Fellow CMA panellist Martin Cave clearly doesn’t share Witcomb’s doubts about the remedy – which he slammed publicly, not because it was a departure from the CMA’s usually pro-market approach, but because it was not extensive enough. He suggested a wider temporary price cap applying to all standard tariffs “was required to address the scale of detriment identified in the short term”.
Witcomb carefully acknowledges the break in ranks. “On 99.5 per cent of what we do Martin is absolutely with us. We talked about it and looked very hard to see whether we could widen the net of a price cap and decided there wasn’t any way of doing that.”
A stern look flickers across Witcomb’s face as he stands strong on the view that it is very difficult to remove a “temporary” price cap. “Martin thinks you can put on a temporary price cap and when you take it off everything will be lovely. We thought that was very dangerous.”
Witcomb remains positive, though, that his remedies are right and puts his faith in the readiness of the industry to implement them. Does he think it is prepared? Yes.
The slow speed of the smart rollout is seen as another hindrance to successfully putting the remedies in place. There have been numerous delays, most recently moving the start from August to September, which makes the 2020 completion target ever harder to reach.
“The real issue out there is the smart meter rollout, but I don’t think we are putting any sort of burden on suppliers that they wouldn’t shoulder anyway – and that some of the brighter ones aren’t already putting in place.”
Actions of the government, such as the knee-jerk decision to cut £50 off bills prior to the last election, also hinder progress in the sector, according to Witcomb, who adds that the new department “should be transparent, consult properly and explain what they are doing”.
Reflecting on the probe, Witcomb smiles as he tells Utility Week that he “had fun”. Overall, “we decided to do what we can to make the market work better, it was a fantastically good process. I’ve done a lot of these inquiries but this was both the biggest, and best”.
The smile lingers as he gives his response to critics who attacked the CMA for the predictability of its outcomes, accusations that it favoured the big six suppliers and its cost of £5 million to taxpayers. “The two most extreme sets of criticism come from those who think that we haven’t done enough at one end and those who think that we’ve done too much at the other,” he says.
“Being attacked from both sides doesn’t mean you’ve got it right but it does mean that whatever you do you are not going to avoid being attacked. The retail market is essentially bipolar. You can’t have a little bit of price control without completely destroying the move towards making it more competitive. You can’t be a little bit price-controlled, you have got to be brave and say which way you are going.”
Amid the controversy, there has been a relatively straightforward finding in relation to the wholesale market. When the inquiry began, the sector was concerned about liquidity and vertical integration, which the CMA claims to have “put to bed very precisely, conclusively and at an early stage”.
Witcomb jokes that if you asked companies whether the inquiry should be scrapped, “late at night when they don’t think they are being quoted, I think most of them would say that actually it’s helped them”.
As our conversation draws to a close, Witcomb reflects on the energy market and its competitive development over the past couple of decades.
“When the liberalisation of utilities happened in the 1990s it was based on ideology, it was an idea. But no-one has looked back and asked whether these particular retail markets are suitable. I think somebody should be asking, is this the right model for this particular section of the market?
“It needs to be done properly. We’ve had too many knee-jerk reactions. It needs to be a proper piece of work.”
Witcomb leads us out on to the open and empty roof terrace, a stark contrast from the small meeting room where we’ve been talking. He points out the window of his flat just a stone’s throw away and we laugh that a trendy PR firm would make use of the space for events. He adds that the “public doesn’t want to see the CMA having fun”. So it is just a space for reflection and to watch the city grow as 40 or so cranes pop up between the towering buildings.
Witcomb and his CMA panel have spent a lot of time looking at and reflecting on the energy market, and they have seen how it grown and transform over the past couple of years. The signs are positive and Witcomb believes the CMA’s remedies will help drive further improvements.
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