Fixing the dysfunctional energy market

Ofgem are in the news this morning, warning energy firms to deliver on the Competition and Markets Authority (CMA) recommendations. If they don’t he warned of very un-Ofgem consequences including price regulation.

The Ofgem boss said: “If the industry doesn’t deliver on the CMA remedies, if it doesn’t get competition back on track, in my view plans to regulate electricity and gas prices more widely may go back on the table. I don’t believe it can be regarded as a regulatory ‘pick and mix’”. It’s time to finalise the details of how best to implement the remedies and make them work.”

The CMA’s recommendations include the creation of a database of disengaged customers and a temporary ‘safeguard tariff’ for customers on pre-payment meters. Some companies have hinted at potential legal action.

Perhaps surprisingly, Labour’s new shadow energy minister could be an ally on safeguarding tariffs. Alan Whitehead argues that vertical integration is a problem and suspects the investigation was hampered by assumptions around switching. That assumption is the basis for the CMA’s headline remedy of a safeguard tariff for customers languishing on expensive variable tariffs. Whitehead argues this has the potential to silo-off customers even further from market participation before attempting to bring them back. His preferred remedy would have been safeguarding through transparency, with clear breakdowns of tariff costs in a manner that would allow customers to make direct comparisons, but such a remedy was discounted by the CMA.

He told Utility Week, “I was rather disappointed that the CMA didn’t look rather more carefully at that, and concluded in the end that basically you just annoy people for three years in terms of possible switching, and then if they still don’t switch, you start metaphorically shouting through the letterbox and banging on the windows, and it still probably wouldn’t work after that point.”

This squabble between Ofgem and the energy companies comes on the back of Ofgem fining Scottish Power £18m for customer service failures. Ofgem, said the firm failed to treat its customers fairly, with inadequate call handling, complaint resolution and billing. More than 300,000 customers across the UK received late bills. The £18m will go to vulnerable customers and charity.

Public confidence in energy suppliers is also falling. The Dept of Energy (DECC) has published its latest annual public attitudes on energy and that shows significant reductions in two key elements of customer service. Half of people do not trust their energy provider to inform them about the best tariff for them, down from 54%. There was also a 3% fall in the number of people who trust their energy provider to give them accurate and impartial advice on energy efficiency measures – dropping to 54%.

It is clear that there is still plenty wrong with the energy market, but still no consensus on how to fix it.

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