The final set of remedies announced this morning by the CMA do not appear to have changed materially since the Provisional Decision on Remedies (PDR) published earlier this year (except that the prepayment price cap will not apply to SMETS2 smart meters). Given that various parties stated that the provisional remedies did not go far enough to address perceived issues in the market, we can expect further criticism of the Final Report today. But is the criticism justified? Have the six large energy suppliers got off lightly?
The first thing to note is that since Ofgem referred the market to the CMA the number of suppliers has nearly doubled (to 40) and the market share of the independents has risen dramatically from 7 to 17% (Energy UK). If competition was weak at the start of the investigation, it certainly doesn’t seem that way now and it is hard to imagine the investigation being launch today. There is an argument therefore that the last thing the CMA should be doing is making radical interventions – the market appears to be self-correcting.
Indeed it is previous regulatory interference (notably by Ofgem with the Retail Market Reform) that the CMA itself identified as having hindered competition. By removing many of the restrictions that the RMR imposed on suppliers (allowing them to offer more tariffs, bundled propositions and incentives) the CMA has taken a positive step that should further accelerate competition. The last time suppliers had such commercial freedom (2010) the six largest suppliers had 99% market share – so if the independents have grown dramatically despite these restrictions, they are likely to grow even more rapidly now that the shackles are off.
That is unless the larger suppliers fight back… but to do that is going to require radical action: as well as slashing costs, suppliers are going to need to be far more commercially nimble and innovative – protecting margins through differentiation and segmentation.
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