Competition and Markets Authority’s investigation into the big six: It’s time to welcome a new era in the energy industry
An eighteen month investigation into the energy market is nearing a close, and the Competition and Markets Authority (CMA) has recommended some practical solutions.
This is much needed, given that 20 years after privatisation, 70 per cent of big six customers are still on the most expensive tariff and have been for far too long.
We've consistently said that the big six keep their loyal customers in the dark about cheaper deals, resulting in disengagement and a lack of trust.
And the CMA agrees, saying that the big six have taken their customers for granted resulting in UK households collectively overpaying by more than £1.7bn a year – that’s about £300 per household.
Read more: CMA wants energy price cap for pre-payment meters
The big question has been whether the CMA’s proposals would do enough to give consumers the confidence and ability to engage in the market, shop around and save.
Certainly yesterday’s report has done a good job of addressing this, with clear and deliverable provisional remedies, which will bind the big six by regulation implemented by Ofgem and the government.
The headlines have focused on the transitional price cap for pre-pay customers and the introduction of a central customer database to allow suppliers to market to households that have been on a standard variable tariff for more than three years.
These are a move in the right direction, although there needs to be proper governance around the opening up of customer details to avoid a situation where customers are inundated with direct mail that could turn them off the market.
What we found most interesting were recommendations to test the inclusion of more transparent pricing information on the bill.
Today’s regulation says suppliers must actively tell their customers about their best tariff each time they send a bill. The problem is however, the big six communicate this information infrequently with their customers as they bill quarterly or even worse, annually.
Read more: Fellow watchdog to slam Ofgem over tariffs policy
We bill monthly and know that clear and frequent communication is necessary to enable customers to identify the best tariffs for them. Throughout the CMA’s process, First Utility proposed that this regulation should go much further forcing suppliers to include – supermarket style – the market’s cheapest tariff in their communications with customers, not only from their own products but from all suppliers.
We are delighted that the CMA has recommended that Ofgem tests this method. Another suggestion we made during the investigation was to rename the industry’s most expensive (and default) tariff – the standard variable tariff. We were calling for it to better reflect that it is an ‘out-of-contract’ option which, by its new name, would nudge customers to hunt out a better deal.
We think this would help customers to treat energy with the same level of interest that they would with a mobile phone contract or a car insurance policy. Again, the CMA has asked Ofgem to test this which is positive.
Overall, we have been encouraged by the CMA’s proposals. Now is the time to welcome a new era in the energy industry, where customers are both aware and taking advantage of choices, and competition is fostered, bringing down prices and building trust.