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Competition and Markets Authority Energy Probe

Update regarding the Competition and Markets Authority energy solutions 

Ofgem referred the energy market to the Competition and Markets Authority (CMA) in June 2014, calling for an in-depth investigation after establishing that there was reasonable cause to believe that the energy market was hindering industry competition. Consultations followed in 2015, where market issues were highlighted along with suggestions for suitable solutions. The contents of the investigation included suggestions put forward by domestic and micro-business customers; although few of the solutions affected the entire market.

Key solutions to impact Industrial and Commercial (I&C) customers:

Switching

Ofgem suggested implementing a controlled database which would contain information regarding disengaged domestic and micro-business customers. To gather information, suppliers would be compelled to submit data about their customers, who had either been on: 

  • domestic standard variable default tariffs and/or
  • out-of-contract micro-business contracts for three years or more.

This initiative would enable fellow contenders to contact disengaged customers, offering them better deals by switching suppliers. The onus is on suppliers to contact their customers, notifying them of an opt-out option.

Trials conducted by Ofgem showed that further policy developments were required in this area. As a result, this initiative has been temporarily halted until further consultation and market trials take place.

Transmission losses

To improve efficiency in this regard, variable transmission losses would need to be priced according to location. The National Grid spearheaded an industry amendment in line with the CMA’s determination and P350 which saw the introduction of the Transmission Loss Factor (TLF). This applies to each TLF zone for each Balancing and Settlement Code (BSC) season, which allows for allocation of transmission losses according to the geographical zone. The CMA is mandating this through secondary legislation and license changes, effective as of the 1st of April 2018.

Rollover Contracts

As prescribed by the CMA, suppliers are prohibited from rolling over micro-business contracts for a new, fixed 12-month term whereby the customer has failed to either renew their contract or provide notice once their current contract is set to expire. In sum, this policy seeks to do away with termination fees and no-exit clauses. As a result, micro-businesses are at liberty to exit their contracts within a notice period 30 days – in the eventuality that they fail to take action once either their fixed or auto-renewed contracts draw to a close.

Settlement Reform

Ofgem aims to introduce compulsory half-hourly electricity settlement. Thus far, cost barriers attached to elective half-hourly settlements (with a profile class of 1 to 4 meters) have been removed. This follows on from mandatory HH settlement for profile class 5 to 8.

Price Transparency

This proposed solution requires that suppliers disclose prices (applicable to all of their acquisition and retention contracts) to smaller micro-business customers. This is achieved via an online quotation tool or third party comparison website, effective as of June 2017. Moreover, suppliers are obliged to disclose their out-of-contract and deemed contract rates on their respective websites.

Watch this space for further details about the Competition and Markets Authority energy investigation…