CMA issues provisional findings in energy market investigation

The Competition and Markets Authority (CMA) has today published its provisional findings resulting from its year-long investigation into the energy market together with a notice of possible remedies.

The CMA has found that there are several features of the energy market that give rise to adverse effects on competition (AECs), including:

• the absence of locational pricing for transmission losses;
• the mechanisms for allocating CfDs that increase the risk of inefficient allocation of financial support;
• weak customer response in the domestic and microbusiness retail supply markets, giving suppliers a position of market power over their inactive customer base;
• the “simpler choices” component of the Retail Market Review rules reducing retail suppliers’ ability to innovate in designing tariff structures;
• the current system of gas settlement;
• the absence of a firm plan for moving to half-hourly settlement for domestic and the majority of microbusiness electricity customers and of a cost-effective option of elective half-hourly settlement;
• a lack of robustness and transparency in regulatory decision-making which increases the risk of poor policy decisions;
• the industry-led system of code governance that limits innovation and causes the energy markets to fail to keep pace with regulatory developments and other policy objectives.

There are a large number of proposed remedies, which notably include a transitional “safeguard regulated tariff”, with the maximum price level for default tariffs being set by Ofgem or the CMA as a measure of last resort. Other remedies include the introduction of variable Transmission Loss Factors, the removal of the “simpler choices” component of the Retail Market Review and the revision of Ofgem’s statutory objectives and duties to increase the emphasis on Ofgem’s responsibility to promote competition as a primary objective. The CMA is however minded not to pursue a number of remedies such as price control regulation of all domestic and microbusiness retail energy tariffs.

Next Steps

The CMA expects to publish the full provisional findings report on its website by 10 July 2015. Comments are invited by 31 July.

The final report is expected to be published in November or December 2015 (with the statutory deadline being 25 December 2015).

Further Information

To review the Summary of Provisional Findings, the Notice of Provisional Findings and the Notice of Possible Remedies, please click here.

For further information, please contact: