Five former energy regulators have launched a withering attack on the Competition and Markets Authority (CMA) dismissing its recent report on the big six power suppliers as fundamentally flawed.
Prof Stephen Littlechild, ex-head of Offer, Clare Spottiswoode, former head of Ofgas, and others expressed “grave concerns” about the CMA’s conclusion that the energy companies have been overcharging and condemned its proposed remedy of barring price rises.
They said: “The proposed price control – a safeguard price cap or default tariff – has serious disadvantages. It will restrict competition and militate against the CMA’s other remedies to increase customer involvement.
“It will increase regulatory uncertainty and hence the cost of capital, and hence prices to customers. The recommendation also ignores the practical and political implications of such intervention.”
The former regulators have made their intervention in a submission to the CMA in response to the watchdog’s report of 10 days ago. Energy companies have been under review since a series of price rises triggered a consumer and political backlash.
The CMA said the big six had made excessive profits of £1.2bn between 2009 and 2013, effectively arguing they had done so because customers had been too disengaged to switch to cheaper providers.
But the regulators, which also include Sir Callum McCarthy, previously chief of Ofgem, Eileen Marshall, ex-managing director of the energy regulator, and Stephen Smith, a former senior executive there, says the CMA failed to explore the reasons behind the increase in profits and wrongly concluded it was down to customer disengagement.
The former watchdog executives also attacked the CMA proposal that the energy regulator, Ofgem, should operate a price comparison site. “It would not increase trust in existing websites, in practice it would not be more authoritative, and it could reduce or distort competition in the market,” they argued.
British Gas and other companies have questioned the CMA’s proposed use of price caps but Peter Atherton, an energy analyst with Jefferies investment bank, described the ex-regulators’ intervention as the most significant.
“We agree with much of their analysis and criticism of the CMA’s initial findings. In particular, we also found the CMA’s rationale for the introduction of a safeguard tariff unconvincing to say the least,” said Atherton.
“We agree with the ex-regulators that the inevitable distortion of the market that this would cause is likely to be to the detriment of consumers and to outweigh whatever limited benefits there might be.”
The CMA will not finalise its recommendations on how to reform the energy market until later this year but it has already proposed the scrapping of a recently introduced measure to restrict the number of energy tariffs available.
The competition authority’s most critical comments came in an assessment of how large utilities have benefited at the expense of their customers.
“The initial findings of this [CMA] analysis suggest that average prices offered by the big six firms over the period 2009 to 2013 were around 5% above the competitive level in the domestic segment … this amounts to domestic customers paying around £1.2bn … more on an annual basis,” it concluded.
The five regulators said in their submission to the CMA that it had failed to acknowledge that a variety of previous interventions by the regulator since 2008 had restricted competition. Those interventions were very likely to be an important reason for the increase in profits, they claimed.
“If it had acknowledged this, the CMA would have had to acknowledge that removing those interventions would increase competition and reduce profits which would undermine the case for reintroducing price controls.”