The Competition and Markets Authority will present provisional findings from its investigation into the power supply sector on 7 July. The world may have moved on – and the Conservatives won an election – since the Labour leader’s intervention nearly two years ago, but the watchdog’s report will throw renewed light on an industry that remains deeply unpopular.
What improvement there has been in the fortunes of the big six has come in part simply because the price of power has fallen – further encouraged by a warm winter – and in part because Cameron’s conservatives taking full power has taken Labour’s confrontational stance firmly off the agenda.
But put on the back foot by that Labour conference pledge nearly two years ago, and amid rising consumer anger, the government responded by ordering the regulators to assess competition in the market.
The result was energy regulator Ofgem finding “possible tacit co-ordination” on the size and timing of price rises by British Gas, EDF, E.ON, npower, Scottish Power and SSSE. Some of the rising public and political heat over fuel poverty was taken out of the situation finally last year when the Competition and Markets Authority began a full industry investigation.
But despite the ongoing inquiry, as recently as January Ofgem was complaining that falls in wholesale gas prices were still not being passed on sufficiently to customers and company profits were continuing to rise.
With the key findings of that competition review due as soon as the end of the month, the row is likely to be reignited with the CMA expected to blame bad regulation rather than profiteering on the part of the suppliers themselves. But initial hopes of critics that the big six would be forcibly broken up to separate their wholesale power divisions from their retail energy supply arms are expected to be dashed.
The competition authorities are instead tipped to argue that so-called “vertical integration” is not the real problem. Instead the CMA will focus on the way the incumbent large firms have a built-in advantage from “sticky” customers who for a variety of reasons – apathy, even misplaced loyalty – do not take the trouble to switch supplier.
It is those bulk of those customers - usually inherited from the days of nationalisation and on standard variable tariffs – who are getting what even the government’s energy adviser, Dieter Helm, calls a “bum deal.”
The competition authority will suggest ways of reinvigorating a stagnant market in an attempt to inject more competition and opportunities for independent suppliers such as First Utility, Ecotricity and Ovo Energy which have been increasing their market share - but slowly.
Ironically, one way the watchdog may recommend to scrap a scheme introduced relatively recently by Ofgem, which aimed to simplify the choice for consumers by cutting the number of tariffs suppliers could offer to four.
The CMA is expected to justify this move, which may concern consumer groups but will please the companies, by arguing that restricting the number of tariffs is counterproductive. It is expected to argue that by stifling innovation the tariff limit works in favour of the big six, which still hold 90% of the retail market.
Although some of the political heat around the energy sector has been reduced, consumers remain concerned and the companies themselves continue to struggle with their public image despite offering a raft of price cuts.
Recent research from consumer group, Which?, showed that energy costs had risen from 2% of household income in 2004 to 4% a decade later.
Two thirds of those questioned in a survey worried about the cost of energy more than anything else. Angela Knight, the outgoing head of Energy UK, the lobby group for power companies admitted late December the consumer remained suspicious of the industry.
She said: “We have certainly improved [our reputation] a bit. Not a lot… If the industry was at three [out of 10 during the height of the criticism in the winter of 2013] we are now at four and rising. We have a long way [to go].”
The CMA report will try to address this - as will an initiative from Ofgem itself to move into a system of “principles-based regulation” which would concentrate on holding companies to a wider duty of avoiding consumer harm.
The energy regulator is planning to hold a preliminary meeting on the issue on 7 July with power suppliers but consumer groups are already nervous, saying such light-touch regulation will only work if more specific rules are retained. But despite the fears of consumer groups, the change of emphasis might not work in the favour of the big six.
Small independent supplier Ovo Energy has welcomed the move, describing the current regulatory regime as “nonsensical and burdensome” and saying the quantity and complexity of regulation in the energy retail market is a barrier to entry and expansion.
theguardian.com
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