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Response to the CMA’s provisional decision on remedies

18 April 2016

Response to CMA provisional recommendations [ 1.4 mb]

In calling for a market investigation referral, we set out four key issues that the inquiry would need to tackle in order to stand a chance of being successful.

First, ensuring the market works for all consumers, both domestic and non domestic. The CMA needed to drill down beyond the notional average consumer to look at the circumstances affecting different types of consumer. Energy is an essential service, and the CMA needs to be confident that the market works for all consumers, not simply those in favoured segments. If some vulnerable groups are so disengaged that no competitive remedy is likely to ever reach them, we challenged the CMA to give consideration to whether ‘backstop tariffs’ or other mechanisms are needed for their protection.

Second, providing assurance on the delivery of social and environmental programmes. We were looking to the CMA to see if these schemes were delivered efficiently and bring transparency to their true costs.

Thirdly, competitive intensity. Ofgem had identified evidence of asymmetric pass-through of changes to supplier costs – with hikes passed on more readily than drops. Its supply market indicators were suggesting a sustained medium term increase in the profitability of supply activities. Such evidence implied a market characterised by soft competition, with insufficient pressure on suppliers to compete margins away. The CMA needed to identify and tackle the causes of this.

Finally, the CMA needed to improve trust and transparency in the sector. The public lacks confidence that the prices they pay are fair. A major contributory factor is the lack of transparency on the underlying cost drivers that move retail prices, which has resulted in frequent public disputes between industry, regulator and government. The inquiry needs to equip the public with the tools to break this cycle.