When, almost exactly a year ago, Ofgem referred the energy market to the newly established Competition and Markets Authority (CMA), the regulator described it as a chance to “clear the air” and to increase consumer confidence and understanding. Energy UK and many of its members – including those who had previously pushed for such an inquiry and others who had derided it – made similar noises.
That so much of an industry sought refuge in the CMA’s first really significant detailed market examination was indicative both of how far public trust in energy suppliers had declined, and just how frustrated the industry had become about trying to explain the complexities of their operations and prices.
After 12 months – and with a further six to go before its final report – the CMA’s interim report and indicative remedies contain no real surprises. The commentary on both the CfD allocation process and locational transmission costs will doubtless provoke debate. Vertical integration escaping unscathed was widely expected and priced in by City analysts.
On the retail market the stark, but unsurprising, conclusion that customers on standard variable tariffs have overpaid by around 5 per cent since 2009 confirms what many thought. Government and industry action on switching, and providing information about better deals, has done little to engage those customers who also tend to be those with the lowest disposable income – as many have noted. The proposal for a temporary price intervention while market changes are put in place also sounds familiar.
What matters now is the approach of industry ahead of the final report. With the government having previously committed to implementing the CMA findings in full, consultation on the detail will be important. Just as significant will be the attitude of energy suppliers. All have recognised and sought to address the lack of customer trust, and some have taken steps beyond the CMA proposals to increase transparency between retail and generation arms.
Being less defensive and more transparent gives an important opportunity to provide the fresh start and clear explanations called for 12 months ago.
Hoping to return to business as usual won’t work. While the fall in wholesale prices has resulted in less public attention, an unreformed market will see the same issues return with a vengeance when gas goes up again.
Sandwiched between the Greek referendum result and George Osborne’s first budget unencumbered by coalition politics, the CMA’s report may be a one-day media event before the caravan of political debate trundles on. To mistake fleeting press attention for a lack of significance would be a miscalculation. For the big suppliers to fail to take the opportunity the CMA process offers would be a mistake.
Tom Greatrex, former shadow energy minister