Competition and Markets Authority (CMA) investigation into the Energy Market

Update on the CMA remedies to the Energy Market

The energy market was referred to the CMA by Ofgem in June 2014 for an investigation after the regulator concluded that there were reasonable grounds for believing that features of the market were proving detrimental to competition. There were several consultations during 2015 as the CMA identified market issues and provisional remedies. The scope of the investigation covers domestic and microbusiness customers only but some of the remedies (e.g. settlement reform) may impact the whole market.

The main remedies that impact the I&C market are as follows:

 

Switching

The CMA recommended the creation of an Ofgem-controlled database holding information on disengaged domestic and micro business gas and electricity customers. Suppliers would be required to submit data to Ofgem about their customers who have been on domestic standard variable default tariffs or out of contract (deemed) micro business contracts for three years or more. This would allow rival suppliers to contact these disengaged customers by post with a view to offering them a better deal by switching energy supplier. Suppliers must write to customers to give them the opportunity to opt out of this new scheme. 

Ofgem has been conducting trials and have concluded that further policy development is needed in this area. This remedy has therefore been put on hold for the time being and there is likely to be further consultation.

Transmission losses

This remedy requires that variable transmission losses are priced on the basis of location. The aim of the remedy is to improve generation efficiency. National Grid raised an industry modification in line with the CMA’s determination and P350 will introduce a Transmission Loss Factor for each TLF Zone (which will align with the existing Grid Supply Point (GSP) Groups) for each BSC Season in order to allocate transmission losses on a geographical basis. The CMA is mandating an implementation date of 1 April 2018 through secondary legislation and licence changes. Further details can be found at the following link:

https://www.elexon.co.uk/wp-content/uploads/2017/05/P350_FAQs_v2.0.pdf

Rollover contracts

The CMA have prohibited suppliers from rolling over micro business contracts for a new fixed 12 month term where a customer either fails to re-contract or give notice when their current contract expires. The new rules include certain restrictions that prohibit both termination fees and the use of no-exit clauses where a customer falls out of a contract. This means that micro business customers are now free to leave at 30 days’ notice if they take no action when their fixed contract ends. The prohibition of termination fees will also extend to evergreen contracts.

Settlement Reform

Ofgem are to conduct a full cost-benefit analysis of a move to mandatory half-hourly electricity settlement and remove cost barriers to elective half-hourly settlement of profile class 1-4 meters. This follows the completion of mandatory half-hourly settlement for profile class 5-8 meters.

More information can be found at the following link:

https://www.gov.uk/cma-cases/energy-market-investigation

Price transparency

This remedy would require suppliers to disclose prices of all their available acquisition and retention contracts to smaller micro business customers through an online quotation tool or third party price comparison website (PCW). This remedy must be implemented by the end of June 2017.

Suppliers are required to disclose their out-of-contract and deemed contract prices on their websites.