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 covered domestic and microbusiness customers only but some of the remedies (e.g. settlement reform) affected the whole market.
The main remedies that impact the I&C market are as follows:
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 would have to write to customers to give them the option to opt out of this new scheme.
Ofgem have been conducting trials and have concluded that further policy development is needed in this area. Ofgem have since put this remedy on hold for the time being and there is likely to be further consultation and market trials.
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, through secondary legislation and licence changes, an Implementation Date of 1 April 2018. Further details can be found at the following link:
The CMA has 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.
Ofgem are now moving the industry towards mandatory half-hourly electricity settlement and have already removed cost barriers to elective half-hourly settlement of profile class 1 -4 meters. This follows the completion of mandatory HH settlement for profile class 5-8 meters.
More information can be found at the following link:
This remedy requires suppliers to disclose prices of all their available acquisition and retention contracts to smaller micro business customers through an online quotation tool or 3rd party price comparison website (PCW). This remedy was implemented in June 2017.
Suppliers are also required to disclose their out-of-contract and deemed contract prices on their websites.