Community Energy Plus News

Two-year CMA investigation “misses golden opportunity to reduce fuel poverty”

The Competition and Markets Authority (CMA) has today set out proposals to reform the energy market, open up competition and help customers get a better deal. In response the Cornish fuel poverty charity Community Energy Plus has criticised the investigation’s recommendations as it believes that they will do little to reduce the high level of fuel poverty in the county.

The CMA has been investigating the energy market since June 2014 in response to a referral from the energy regulator Ofgem.

It has found that around 70% of domestic customers with the six largest energy firms are still on the more expensive ‘default’ standard variable tariff, despite this costing them over £300 a year more than if they switched to a cheaper tariff. In total customers have been paying around £1.7bn a year more than they would in a competitive market.

In order to help encourage more people to switch and boost competition in the energy market, the CMA proposes the creation of an Ofgem-controlled database of disengaged customers who haven’t switched in three years. This will allow rival suppliers to target their marketing to those customers.

Dr Tim Jones, Chief Executive of Community Energy Plus said: “Far from encouraging customers to stop paying more than they need to on their energy bills, the likely bombardment of direct mail and sales calls from energy suppliers and price comparison sites are likely to create further disengagement and it therefore misses a golden opportunity to reduce fuel poverty.

“While we welcome the move to stop prepayment customers being ripped off, the savings they are likely to make are a drop in the ocean in terms of the money households are needlessly paying by not switching tariffs regularly. Our research suggests that in Cornwall, collectively we would keep more than £46 million in our economy if everyone regularly switched. The investigation fails to recognise that many consumers need a greater prompt than a leaflet through the door or a sales call to convince them that tariff switching is easy and will save them money. The CMA have missed a golden opportunity to recommend regulations that protect the most vulnerable householders on low incomes from the inflated standard variable tariffs which simply serve to boost the profits of energy suppliers.”

Last January Community Energy Plus launched a collective switching initiative to use group buying power to secure exclusive cheap energy tariffs with suppliers. Community Energy Switch offers three collective energy switches a year along with a full market price comparison and switching service. In its first year over 1,000 households saved an average of £247 on their energy bills, keeping more than a quarter of a million pounds in the pockets of its deal savvy tariff switchers.  The service makes it easy for householders to reduce their energy bills online at www.communityenergyswitch.org.uk or by calling Freephone 0800 804 7247.

Dr Jones continued: “In light of the half-hearted recommendations made by the CMA, charities like Community Energy Plus will continue to have a vital role in helping householders to understand the benefits of switching and to provide the support necessary to help them take control of their energy bills.”

A summary of the main measures proposed by the CMA are as follows:

  • An Ofgem-controlled database which will allow rival suppliers to contact domestic and microbusiness customers who have been stuck on their supplier’s default tariff for 3 years or more with better deals. This will be subject to strict safeguards so that customers can opt out at any time and to ensure that communication meets strictly controlled criteria.
  • A transitional price control for the 4 million households who are on prepayment meters, who face limited competition from suppliers and whose ability to switch and find better deals is far more limited than for credit and direct debit customers.
  • Strengthening the ability and incentives for third party intermediaries such as price comparison websites (PCWs) to help customers find better deals by giving them access to relevant information like customer meter numbers and allowing them to negotiate exclusive deals with suppliers. This will be accompanied by a requirement for PCWs to be transparent about how they cover the market and the information on display.
  • Removing the 4 tariff rule which limits competition and innovation. This will enable suppliers and PCWs to offer tariffs designed for certain customer groups.
  • Removing restrictions on the ability of new suppliers to compete for prepayment customers and reduce barriers such as debt issues that make it difficult for such customers to switch.
  • A requirement that the approximately 700,000 households on non-Economy 7 restricted meters are allowed to switch to cheaper single-rate tariffs without requiring a meter replacement.
  • Helping microbusinesses through improved price transparency, tackling ‘rollover’ contracts with greater notice periods and ending termination fees which prevent switching as well as moves to prompt and engage.
  • Ensuring that certain measures in Ofgem’s programme to help provide domestic customers with clearer information are prioritised and ensuring that all measures concerning domestic and microbusiness customer information are ‘road-tested’ prior to introduction.

These changes would be brought in via a combination of CMA Orders and recommendations to Ofgem and government.