CMA energy probe warns of overpaying and "unilateral market power" over customers

18th Feb 2015 08:33

An investigation by the UK competition regulator into the 'Big Six' energy suppliers has found that households are losing significant amounts from a lack of tariff switching and that the firms have "unilateral market power" over most customers.In an update to its ongoing energy markets investigation, the Competition and Markets Authority (CMA) found that customers that buy gas and electricity on dual fuel tariffs from the same energy supplier have lost out on more than £200 of annual savings by not switching tariff.Between the first quarter of 2012 to the middle of 2014, over 95% of the dual fuel customers of the six large energyfirms could have saved between £158 and £234 a year by switching tariff or supplier.The Big Six - consisting of Centrica's British Gas, E.On, EDF Energy, Npower, Scottish Power and SSE - together account for roughly 92% of the UK energy market.The CMA investigation has yet to run its full course, with additional working papers due for publication, opportunities for written and oral submissions by the six companies, as well as notification of provisional findings and possible remedies as required. These must all be completed before the final report is published at the end of 2015.The investigation noted that customers on standard variable tariffs (SVT), the most common form of tariff, generate better gross margins for these energy companies and that there was some evidence that that Big Six have "unilateral market power" over these customers."We have observed that the six large energy firms have consistently charged higher prices for the SVT for gas and electricity compared with non-standard tariffs, which provides some support for the view that these suppliers can segment the market and price discriminate."The CMA report added: "We are continuing to look at whether overall levels of profitability in energy retail have exceeded an appropriate benchmark."Moreover, the survey data also provided evidence suggesting that a "substantial proportion" of domestic customers aredisengaged, especially SVT customers, "which would tend to insulate suppliers from competitive pressures for those customers"."We have not yet taken a view on the strength of arguments that the six large energy firms attempt to keep their SVT customers disengaged, so as to retain them on high tariffs," the CMA said. Smaller energy suppliers took the opportunity to criticise these giants of the industry, highlighting how millions of energy customers, a disproportionate amount of which are vulnerable through their age or poverty, are being punished not rewarded for their loyalty.Jessica Lennard, head of corporate affairs at smaller supplier OVO, said:: "The sheer scale of this will come as a shock to many people. It's fantastic news for customers that this issue is being brought into the spotlight. Companies taking advantage of their customers are now on borrowed time."Several of the Big Six companies pointed out, in response, that a number of important stages in the CMA investigation still needed to take place before accurate conclusions can be drawn.Centrica issued a statement where it said it before the report is concluded in December, "we believe it is important not to speculate on the final report or any possible remedies".SSE chief executive Alistair Phillips-Davies said: "While they clearly result in a degree of short-term uncertainty, the continuing energy market investigation along with the forthcoming UK general election do provide opportunities to achieve greater regulatory and policy stability in the GB energy market, for the benefit of customers and the required investment in the country's energy system."It is in everyone's interests that we have a trusted energy market that not only works for customers but is seen to do so."