The Competition and Markets Authority (CMA) investigation into the energy supply market has already surprised industry. The reasons? It’s “concern” about the prices small businesses face and the “barriers” they encounter when trying to engage with the market.
At Citizens Advice we couldn’t agree more. Our predecessor body, Consumer Focus/Futures, campaigned heavily on the idea that smaller non-domestic consumers suffered relative to domestic consumers because of the “protection gap” they faced regarding regulatory issues like back-billing, debt and disconnection, and contract terms, and regarding market representation.
This policy approach has been fairly successful: suppliers’ debt and disconnection procedures have been improved, we helped create a voluntary back-billing code and lobbied Ofgem to introduce a code of practice for Third Party Intermediaries (TPIs). Now, as part of Citizens Advice, we work much more collaboratively with companies when their behaviour has been poor.
But there is much more to do and the CMA investigation has thrown a light on the lack of price transparency SMEs face and the difficulties they have engaging as a result. Does the contract-based nature of the energy supply market lead to disengagement and confusion among the smallest businesses? Current offerings in the market seem to be more suited to large businesses that are better able to negotiate contracts that suit their needs (and are more likely to be approached by a credible broker) than the little guys. This lack of full-blooded competition is shown up by the margins suppliers enjoy – an incredible 8.6 per cent from SMEs compared with just 3.3 per cent for domestics, according to the CMA. Suppliers that deal with large businesses have an average margin of just 2.1 per cent. Clearly something is not quite right.
The CMA investigation also reveals similar concerns about price transparency from ourselves, the Federation of Small Businesses (FSB) and Ofgem. There seems to be a growing consensus from several stakeholders that given the fairly limited market power of individual SMEs, they may be given fairly standardised prices when they agree a rate with a supplier. The CMA suggests that those SMEs capable of price discovery can get much better deals than others, but that only 23 per cent are on the cheapest “acquisition” deals – 26 per cent are on rollover rates, for example, and they are a third more expensive than the former. There’s no requirement on non-domestic suppliers to publish their tariffs, nor is there an equivalent of a price-comparison website. All of which makes comparing tariff prices complicated and time consuming. Some suppliers do publish some tariff prices but there is no consistency, so any gains for consumers are uncertain.
So while the CMA looks into the efficacy of more transparency and how this might empower SMEs, there is plenty more for us to be getting on with. We have already seen how the new rollover contract rules mean consumers still get rolled over for 30 days (as a notification period, thus inhibiting swift switching) by those suppliers that ostensibly stopped this practice because it was unfair. We also think that there’s more work to be done to introduce more standardised contract terms, particularly around contract termination and what happens if the SME does nothing. No surprise then that the CMA found suppliers enjoying much higher margins on those SMEs caught out.
Citizens Advice aims to improve transparency directly and will shortly be launching a consultation on publishing non-domestic supplier performance data on handling third party complaints (from the Citizens Advice Consumer Service, Ombudsman Services: Energy and the Extra Help Unit). We hope this new league table will enable non-domestic consumers to assess the customer service and complaint-handling performance of potential suppliers properly – at the moment this is almost impossible. Certainly these statistics should provide an incentive for suppliers to improve complaints handling.
We are also asking every non-domestic supplier to voluntarily improve signposting, on their bills and their websites, to independent advice and redress. There is no regulatory requirement to do so, and business suppliers are inconsistent in the way they refer their consumers to the Citizens Advice Consumer Service and Ombudsman Services: Energy. Some provide comprehensive information about third party advice and redress and some do an okay job with room for improvement. Others are in need of significant improvements on their bills and websites. Independent advice and redress is crucial and SMEs deserve these services as much as their domestic counterparts.
The CMA has a big role to play and although we of course wish there was no detriment to be found in the first place, we are nevertheless pleased that the problems have been exposed and will be investigated. But suppliers can, and should, do more now to engage their SME consumers and make the market fairer. We look forward to working with them.
Andrew Hallett, policy manager, Citizens Advice