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OFGEM comes up short in response to CMA findings

Key points:

  • Regulator will introduce a price-cap for customers on pre-payment meters
  • Database of customers who have not switched for some time will be made available to suppliers who wish to compete for their custom
  • Report makes no reference to falling wholesale energy costs and suppliers passing them on to end-users.
  • TEC given assurances that activities of TPIs will be revisited by OFGEM

OFGEM, the energy regulator, has responded to a report into the retail (domestic) energy market carried out by the Competition and Markets Authority (CMA).

Ahead of the two-year investigation, claims had been made that the energy suppliers in general, and “the Big 6” in particular, were seeing profits increase.

In addition, there were concerns around the patterns of price changes in the domestic market, with suppliers generally changing their prices in a seemingly ‘co-ordinated manner’.

There were also claims that the suppliers were quick to pass on increases in wholesale energy costs, whilst less responsive when there were falls in wholesale prices, as has been the case for the past 12-18 months.

Finally, it had been hoped that the CMA might shed some light on the role of Third Party Intermediaries (TPIs) in all sectors of the market, including switching sites.

CMA Report

Firstly, it is worth pointing out that little, if anything, in the CMA report and OFGEM’s response will concern TEC members in their management of energy costs in their institutions.

The concerns highlighted by the CMA were the “old chestnuts” of consumer inertia towards switching suppliers, particularly changing from “the Big 6”.

In addition, the report highlighted some concerns over the levels of prices for those customers, perhaps as many as 4 million households, who were forced to pay for their energy with pre-payment meters. These ‘less desirable’ consumers, it said, were being dealt a raw deal by the suppliers as they were pretty much captive customers due to their poor payment record on more conventional tariffs.

The CMA suggested that supplier switching would be more regular and easier if the data was available on those customers who had never switched suppliers for a better deal and, as a result, were getting poor tariffs.

The implication is that if the alternative suppliers knew who these customers were, then they could be better targeted to get them onto better deals.

OFGEM response

So OFGEM have responded, first of all with the expected comment that more people should switch to better deals – you don’t say!

To support this, they have reversed the previous policy of limiting the number of tariffs and deals suppliers could offer. Their claim now, it seems, is that more choice will mean more switching, where the previous Government had said that too much choice was bewildering and made energy users less likely to switch. It was this confusion that saw almost a third of all energy consumers taking supply from their supplier’s standard credit tariff – seldom the cheapest option.

Perhaps more sensibly, the regulator will also introduce a price-cap for customers on pre-payment meters.

In the last of the headline responses, a database of customers who have not switched for some time, if at all, will be first compiled and then be made available to suppliers who wish to compete for their custom, perhaps offering special deals to entice them to switch.

This may be a little controversial as it may result in these customers being bombarded by potential suppliers via a range of channels. This feels like a return to the doorstep sales era, which resulted in a deterioration in the views of suppliers in general.

Perhaps both the report and OFGEM’s response should be viewed on the basis of what wasn’t in there. It seems that the fact suppliers in the domestic market are making more profit per customer these days than they did as recently as two years ago has been largely ignored.

In addition, there seemed a clear signal that there was little evidence of, hence no need for a response, to the lack of response to falling wholesale energy costs and suppliers passing them on to end-users.

Role of Third Party Intermediaries (TPIs)

Finally, and perhaps a sign that more work will be done, there was no mention of concerns over the activity of TPIs.

The lack of TPI transparency on fees and service and their aggressive and often misleading sales tactics have received no reference or response. 

TEC has been given information that this area will be re-visited as OFGEM resume their work on a Code of Practice and changes in energy legislation to force disclosure of fees and better behaviour. We suppose, in this area, we will just have to wait and see.


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