CMA: Energy Customers Missing Out By Not Switching


February 2015

CMA: Energy Customers Missing Out By Not Switching

The Competition and Markets Authority have unveiled evidence that dual-fuel (electricity and gas) customers have lost out on making big savings by not switching tariffs and suppliers.

The evidence reveals that over 95% of dual-fuel clients of the big energy companies would have saved significant amounts from 2012 to 2014 if they had done so. The savings would have amounted to between £158 and £234 per annum for each customer.

At present, 92% of Britainís energy supplier market is dominated by the so called ìbig sixî companies who are Scottish Power, Npower, E.ON, EDF, SSE and British Gas.

The executive director at ëWhich?í, Richard Lloyd, reacted to the news stating: ìThis is a watershed moment for the energy market as the CMA confirms what weíve known all along: that competition is not working for consumers. It now needs to develop a set of solutions to repair the market and make it work for everyone, not just the suppliers.î

The ongoing investigation from the CMA was initiated in July 2014 in a reaction to Ofgemís concerns about the lack of competition and domination of the market by the big six. Mr Lloyd went on to say that ìpoliticians and regulators have put too much faith in competition driving keener prices for consumers- this simply hasnít worked.î

At the heart of the issue is the resentment articulated by consumer groups and politicians that large energy firms are failing to pass on reductions in wholesale prices to their customers. It is enhanced by the perception that they will quickly bump up their prices when those same wholesale costs rise.

Data shows that the big six increased their gas prices on average by 27% and their electricity costs by 24% across the period of 2009 to 2013. The number of complaints across the period of 2007 to 2013 increased five times. The complaints mostly pertained to customer services, payments and billing issues.

The Competition and Markets Authority also showed that the customers that lost out and did not switch suppliers or tariffs were more likely to be over the age of 65, living in social housing and on low incomes. Further to this, those clients on standard variable tariffs had a higher likelihood of being single, struggling with their financial situation or living with a disability.

The CMA stated: ìWe have observed that the six large energy firms have consistently charged higher prices for the SVT for gas and electricity compared with non-standard tariffs, which provides some support for the view that these suppliers can segment the market and price discriminate.î
They are essentially drawing attention the issue of ìstickyî customers. These are energy clients who were inherited by these energy giants after privatisation took place in the 1990s and who do not ever consider the possibility of switching. Statistics show that around 40% to 50% of electricity users have been using the same company for over ten years.

However, the CMA are yet to release an explicit statement on the profits of the big energy companies and whether they are abusing their domination of the market. The CMA stated: ìWe are continuing to look at whether overall profit in energy retail has exceeded an appropriate benchmark.î

It was not all bad news for big energy firms. The CMA stated their belief that these large energy firms were not enjoying excessive returns from the generation of electricity. Furthermore, they believe there isnít evidence suggesting a deficit of liquidity in the overall market nor wholesale prices being impervious. They went on to acknowledge that there werenít any notable problems with these energy giants owning both the supply and power generation in the market.

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