CMA sets out energy market changes – Press releases – GOV.UK

[Legal Beagles]

The CMA has today set out proposals to reform the energy market, open up competition and help customers get a better deal. In a summary of its provisional decision on remedies published today, the Competition and Markets Authority (CMA) has set out a comprehensive and wide-ranging package of remedies to…
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[Amethyst]

Re: CMA sets out energy market changes – Press releases – GOV.UK

So Capping prepay meter costs ( which all the news appears to be about )
- Capped to control costs until 2020
- Headroom of £25 a year
- the proposed level of the cap as of Q2 2015 is generally in line with the cheapest prepayment tariff prices in many region


As a 'because I chose to' prepayment meter user I'm a bit concerned firms will try and push you to a billing meter.



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Transitional price cap for prepayment customers
133.
We believe that competitive retail energy markets, in which energy suppliers
operate free of inefficient technical and regulatory restrictions, and
customers make informed decisions about the range of choices available to
them, represent the best long-term approach to delivering positive outcomes
for energy customers.

134.
We have identified substantial problems on both the supply- and the
demand-side of the retail energy markets, and we believe that our remedies
package will provide a long-term solution to them, by putting downwards
pressure on prices towards the competitive benchmark level.

135.
However, our proposed remedies will take time to implement before they
start to address the features that we have identified and, in turn, reduce the
detriment to domestic customers arising from them. As a result, we expect
that the detriment arising from the Domestic AECs we have provisionally
identified will persist in substantial form for the next few years. Given the
size of the detriment we have observed, of around £1.7 billion a year over
the last three and a half years, with a marked increase in detriment year on
year, we have therefore considered the need to intervene to address domestic
customer detriment directly in this transitional period, through a
price cap.

136.
We have provisionally concluded that a price cap should apply to domestic
customers on prepayment meters for a transitional period (2017 to the end
of 2020). In reaching this provisional decision, we have given consideration
toa number of factors, including: the strength of the features contributing to
the Prepayment AEC and the Domestic Weak Customer Response AEC as
it applies to prepayment customers; and the level of detriment suffered by
prepayment customers.

137.
The level of detriment suffered by prepayment customers is particularly high.
Over the period 2012 to Q2 2015, detriment expressed as a proportion of the
bill for prepayment customers was substantially higher than that for direct
debit and standard credit customers for both dual fuel customers and single
fuel electricity customers, as set out above. Further, we note that, unlike
other customers, where prepayment customers pay too high a price, part of
the detriment is likely to be felt in abruptly curtailed consumption.

138.
We also consider that a cap covering a relatively restricted proportion of
customers, such as prepayment customers (about 16% of the total customer
base), is likely to be less prone to adverse consequences than a cap
covering a broader group and that the use of an easily identifiable criterion
for qualification (such as being on a prepayment meter) will help ensure that
the remedy is easily implementable within a short period of time.

139.
We have provisionally decided to implement a ‘reference price and cost
index approach’ to set the cap for prepayment customers, which would
involve setting an initial level of the prepayment cap based on our
competitive benchmark analysis (as discussed above) and then allowing the
cap to change over time according to movements in exogenous cost indices
,including wholesale costs, network costs, policy costs and inflation
.
140.
In considering the design and stringency of the cap, we have been
particularly mindful of the need to avoid distortions to competition, while
reducing customer detriment. Notably the design – unlike alternatives we
considered – does not lead to a risk of perverse incentives on the part of
suppliers. Further, the fact that the cap is strictly time-limited and will be
implemented according to an objective formula, will help minimise the risk of
regulatory gaming behaviour.

141.
In determining the overall level of the cap, we have provisionally decided to
include headroom of £25 per fuel per year (ie £50 headroom in a dual fuel
cap). This will mitigate the risk that the cap does not allow for the recovery of
efficient costs and help ensure that competition in the prepayment segments
can coexist with the cap. Indeed, the proposed level of the cap as of Q2
2015 is generally in line with the cheapest prepayment tariff prices in
many regions and we believe that it will be possible for competitive tariffs to
undercut the level of the cap.

142.
At the current proposed level, we anticipate that the cap will materially
reduce detriment for prepayment customers. Had it applied in Q2 2015, it
would have reduced prepayment customer detriment – and, equivalently, the
revenues of the Six Large Energy Firms – by about £300 million per year
,equivalent to a reduction in the average bills paid by prepayment customers
of over 8%.

143.
We note that the proposed price cap would also apply to Mid-tier Suppliers
and smaller suppliers and will therefore result in revenue reductions outside
of the Six Large Energy Firms. The extent of revenue reductions for each
supplier will be determined by the level of detriment currently experienced (in
the form of high prices) by their prepayment customers.

144.
We anticipate that, as our remedies to address supply-side constraints and
improve customer engagement begin to take hold towards the end of the
cap, and as smart meter roll-out increases, competition rather than the cap
will be determining the prices paid by most customers. There will therefore
be a graduated glide path to the termination of the cap at the end of 2020.

145.
While the detriment suffered by prepayment customers is particularly high,
we note that other domestic customers will also suffer detriment during the
transitional period before full implementation of our remedies, and have
therefore given consideration to the application of a price cap to broader
categories of customers, notably all customers on the standard variable
tariff.

146.
Our provisional view is that the costs of attempting to address the detriment
of all customers on the standard variable tariff through a price cap would
likely be disproportionate. We believe that attempting to control outcomes for
the substantial majority of customers would – even during a transitional
period – run excessive risks of undermining the competitive process, likely
resulting in worse outcomes for customers in the long run. This risk might
occur through a combination of reducing the incentives of suppliers to
compete, reducing the incentives of customers to engage and an increase in
the perception of regulatory risk.

147.
Since, as noted above, a large part of the detriment we have observed in the
form of high prices is likely due to inefficiency rather than excess profits, we
believe the best, most sustainable approach to reducing this detriment in the
long term is through fully competitive markets, in which more efficient
suppliers gradually replace less efficient suppliers. Having considered very
closely both the short-term benefits to customers and the longer-term risks
that a broader cap may create, set against the features of the Domestic
Weak Customer Response AEC, we have therefore provisionally decided,
on balance, not to propose an intervention to control prices across all
customers on standard variable tariffs.

[Amethyst]

Re: CMA sets out energy market changes – Press releases – GOV.UK

Daily Mail's view - http://www.dailymail.co.uk/news/arti...suppliers.html

Under new plans only the most vulnerable would remain on a pre-payment 'smart' meter which would cap rates.

I can't see that in the report? ( but it is a bit long and tedious)



Reuters - http://uk.reuters.com/article/uk-bri...-idUKKCN0WC0JK