The CMA Energy Market investigation - PwC UK · As part of this remedy, the CMA propose introducing an additional standard of conduct on the ... The CMA estimates that this remedy

The CMA Energy Market investigation

Provisional decision on remedies: further analysis

11 March 2016


Provisional decision on remedies: further analysis PwC 1

Introduction and strategic implications 2

Detailed remedy analysis 5

Appendix – Summary of the CMA’s remedies 11

Contacts 25

Contents



The CMA published its provisional decision on remedies from its energy market investigation on 10 March 2016. The decision builds on the Provisional Findings report which the CMA published in July 2015 (with an addendum focusing on the prepayment market in December), and the subsequent supplemental notice of possible remedies in October.

The proposed remedies reaffirm the CMA's commitment to market solutions. They form a package of targeted, and in some cases temporary, interventions which are aimed at increasing competition and customer engagement. They also propose changes in the way that policy is developed and implemented. The proposed remedies are structured around the adverse effects on competition (AECs) identified by the CMA, which are primarily focused on participation of retail customers in the market.

If implemented, the CMA’s package of remedies will increase competition, but is not the "game-changer” that some had hoped for (or that others had feared). Stakeholders have until 7 April 2016 to respond to the CMA’s report, after which the CMA will finalise its proposals in June.

In this document, we analyse each of the CMA’s provisional decisions to help guide industry participants on where they should be focusing their time and analytical effort. This report follows a similar structure to the further analysis report we published after the CMA’s Provisional Findings report in July 2015.

We consider 5 remedies will have the most substantial impact

The table below summarises these remedies. For each, we show our view on the impact score for large and small suppliers, generators, DECC/Ofgem and code administrators. Our assessment measures how much the remedy is likely to change market behaviour and/or raise costs, lower revenues or increase the burden for market participants. We use a colour coding where red is a significant, adverse impact; green is a significant beneficial impact and grey is a broadly neutral or modest impact.

We have numbered the remedies to align with the appendix to this report that lists and describes each of the CMA’s provisional remedies in more detail. We note the CMA do not use this short-hand and have not retained the indexation of the remedies used in the Provisional Findings report. When we refer to suppliers in this report, in some cases, we are also considering the impact on gas shippers.

Introduction and strategic implications

https://assets.digital.cabinet-office.gov.uk/media/559fc933ed915d1592000050/EMI_provisional_findings_report.pdf

https://assets.digital.cabinet-office.gov.uk/media/5672e30040f0b64732000007/Addendum_to_provisional_findings_v2.pdf

https://assets.digital.cabinet-office.gov.uk/media/562e11a9e5274a1364000001/Supplemental_Notice_of_Possible_Remedies.pdf

http://pwc.blogs.com/energy_spotlight/2015/07/further-analysis-of-the-provisional-findings-from-the-cmas-energy-market-investigation.html



Remedy

Impact

Commentary

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An order on National Grid, supported by Ofgem, to calculate imbalance charges using locational transmission losses and to allocate 100% of losses to generators

A move to locational charging of transmission losses combined with a shift to a 100% allocation of these charges to generators, will increase the charges borne by generators and by remote generators, in particular. The move is designed to have an impact on investment decisions.

6,7

Ofgem to carry out a full cost benefit analysis on the move to half-hourly settlement, as soon as possible, and DECC and Ofgem to consult jointly on a plan setting out the aim and approach for half-hourly settlement

Half-hourly settlement will require significant aspects of the settlement system architecture to change. The impact on individual suppliers will depend on the level of development of their own settlement systems.

14 Withdrawal of the simpler choices component of the retail market review and introduction of a new standard of conduct

This remedy reverses many of the controversial elements of Ofgem’s retail market review (which was only finalised in 2013). This is expected to be welcomed by many energy suppliers, meaning they can focus specific offerings on niche customer groups again. (Although RMR may have helped some suppliers to gain customers). As part of this remedy, the CMA propose introducing an additional standard of conduct on the design of tariffs so that customers can easily compare value-for-money with other tariffs suppliers offer. On balance this remedy remains a positive move for suppliers by the CMA.

20, 21, 29, 30

A requirement on suppliers to disclose data to Ofgem on disengaged domestic and microbusiness customers to be used in a newly created Disengaged Customer Database accessible by rival suppliers

A disengaged customer database will create substantial, new obligations on Ofgem and could create fundamental shifts in market dynamics as rival suppliers have access to a wealth of information on customers with the biggest incentive to switch. While customers will be given the option to opt-out of the database, and marketing from rival suppliers can only be by post, there remain outstanding issues on the level of protection needed for vulnerable customers and for all customers from unwanted marketing. The impact on suppliers will depend on the proportion of their customers on Standard Variable Tariffs. On balance, the larger suppliers are likely to be adversely impacted.



Remedy

Impact

Commentary

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25 Transitional price cap for annual prepayment customers from 2017 to the end of 2020

The remedy is likely to result in significant revenue reductions to suppliers with a large number of prepayment customers. It is also likely to impact Ofgem, the body which is almost certain to be responsible for updating the price cap.



Detailed remedy analysis In this section we present an analysis of each remedy.

For each remedy we assess the impact on different parties, considering how much the remedy is likely to change market behaviour and/or raise costs, lower revenues or increase the burden for market participants (red – significant, adverse impact; green – significant beneficial impact and grey – broadly neutral or modest impact). We present separate impact scores for large suppliers, smaller suppliers, generators, DECC/Ofgem and code administrators.

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Remedy

Impact

Commentary on our assessment of the impact

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1 DECC to undertake and consult on a clear and thorough impact assessment before awarding any CfD outside the CfD auction mechanism

This remedy seeks to encourage DECC to provide stakeholders with greater transparency and analysis when awarding CfD contracts outside the auction process.

2

DECC to undertake and consult on a clear and thorough assessment of the appropriate allocation of technologies and CfD budgets between pots

Greater transparency on the allocation of CfD funding will allow potential bidders to make informed decisions regarding the projects they undertake. This is most likely to impact DECC, but will also affect the approach to investment taken by generators.

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An order on National Grid, supported by Ofgem, to calculate imbalance charges using locational transmission losses and to allocate 100% of losses to generators

The CMA estimates that this remedy may result in a reduction in the cost of meeting electricity demand of between £158 million and £190 million (over the period 2017 to 2026), but the allocation of 100% of losses to generators, (compared to the current 45% allocation), will increase their costs. The impact will be greatest for generators in remote geographical locations. Making the changes to relevant codes will require effort from code administrators and Ofgem.

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5 DECC to consult on amending the Smart Energy Code to allow suppliers to collect consumption data with greater granularity than once a day

The Smart Energy Code currently only allows suppliers to collect consumption data on a more granular basis if customer consent is granted. The CMA regard the ‘opt-in’ clause as a major barrier to the development of static and dynamic



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time-of-use tariffs. The impact of this decision on suppliers will be a function of the current level of development of their smart metering IS systems.

6,7

Ofgem to carry out a full cost benefit analysis on the move to half-hourly settlement, as soon as possible, and that DECC and Ofgem consult jointly on a plan setting out the aim and approach for half-hourly settlement

Moving to half hourly settlement is a material change in the operation of electricity settlement. It will allow suppliers to match the costs of their electricity purchases to the price of their electricity sales, incentivising the introduction of time-of-use tariffs. The impact on suppliers will depend on the level of development of their own settlement systems. The reforms will also likely require changes to the network codes.

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8 Ofgem to ensure implementation of Project Nexus by 1 October 2016

Project Nexus is a hugely complex system change. Implementation is currently planned for 1 October 2016, but the programme is facing a number of challenges. However, there is an established programme of work underway that will be largely unaffected by the CMA’s recommendation.

9

Gas suppliers to submit all meter readings for non-daily metered customers to Xoserve as soon as they become available, and at least annually for non-smart customers, or monthly for smart

The requirement to submit meter readings more frequently than the current levels may have some cost implications for suppliers.

10

Ofgem to take responsibility for the development and delivery of a performance assurance framework concerning unidentified gas as soon as reasonably practicable

Establishing the new performance assurance framework will involve effort. In addition to set-up costs there are likely to be on-going costs to achieve the performance levels specified in the finalised framework. This may also require changes to the Uniform Network Code.

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11 Allow suppliers to set prices to prepayment customers on the basis of regional cost variations

Ofgem’s retail market review included a provision that price differences between payment methods must be the same across GB. This recommendation opens up the potential for suppliers charging on the basis of regional cost variations. This should improve economic efficiency by ensuring that prices are reflective of genuine cost differentials on a regional basis.



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12, 13 Capping the number of gas tariff pages per supplier (at 12) and giving Ofgem the power to transfer pages between suppliers.

The number of gas tariff pages a supplier holds sets a limit on the number of tariffs it can offer to the market. The CMA has found that the larger energy suppliers hold a significant majority of the available gas tariff pages, thereby possibly crating a barrier to innovation for small and mid-tier suppliers.

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14 Withdrawal of the simpler choices component of the retail market review and new standard of conduct

This remedy reverses many of the controversial elements of Ofgem’s retail market review (which was only finalised in 2013). The CMA recommends the removal of the ‘four tariff rule’ and ban on complex tariffs. It also proposes to remove restrictions on bundling and on discounting. This is expected to be welcomed by energy suppliers, meaning they can focus specific offerings on niche customer groups again. (Although RMR may have helped some suppliers to gain customers).

However, as part of this remedy, the CMA propose introducing an additional standard of conduct on the design of tariffs so that customers can easily compare value-for-money with other tariffs suppliers offer.

On balance this remedy remains a positive move for suppliers by the CMA.

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Establish a programme to promote engagement in the domestic retail market through changes in the information customers receive

A stronger onus on Ofgem to test new measures designed to improve customer engagement before they are introduced. This will involve testing and implementing changes to various elements of the information customers receive (bill design, tariff naming etc). It will impact suppliers during implementation, requiring changes in the information available on websites, bills and annual statements, but we regard the impact to be low.

The CMA encourages suppliers to volunteer their involvement, but failing a satisfactory number of undertakings, the CMA recommends that Ofgem use a licence modification to introduce an obligation on supplier involvement. To the extent that suppliers are affected, the impact is likely to be greatest for smaller suppliers.



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17, 18 Price comparison websites (PCWs) to gain access to the ECOES and SCOGES databases

These measures (aimed at both the electricity and gas markets) are intended to bolster the incentive for price comparison websites and third parties to actively make more effective use of customer data. The CMA hope that these intermediaries will help to exert greater competitive pressure on energy suppliers. The CMA expect to see consumption, metering and other customer data used in more innovative ways in order to encourage greater engagement of domestic energy customers.

19

Mandatory participation for all electricity and gas suppliers in Midata. An increase the scope of information collected and, after customer consent, an ability for PCWs to access customer data

The Midata programme allows customers of registered companies to access electronically a range of data fields stored by the company on their accounts. By granting PCWs access to the Midata databases, PCWs could fulfil a new role in the energy market, acting as brokers between customers and suppliers. This is likely to increase competitive pressures on suppliers with a large number of customers on non-competitive tariffs.

20, 21 A requirement on suppliers to disclose data on disengaged customers to Ofgem to be used in a newly created Disengaged Customer Database

The CMA estimates that around 70% of customers are on standard variable tariffs. Through the creation of a database for disengaged customers (those customers who have not switched in three or more years) and allowing access to data from rival suppliers, the CMA aims to stimulate competitive pressure in the market. The impact on suppliers will depend on the proportion of their customers on Standard Variable Tariffs. On balance, the larger suppliers are likely to be adversely impacted.

Whilst customers will be given the option to opt-out of the database and marketing from rival suppliers can only be by post, there remain outstanding issues on the level of protection needed for vulnerable customers and for all customers from unwanted marketing. The creation and maintenance of the database will also have significant cost implications for Ofgem.

22, 23, 24

Make all single-rate electricity tariffs available to all customers on restricted meters, require suppliers to remind these customers in regular communications that they have the option to

A set of remedies designed to improve the engagement of customers on restricted meters during the transitional phase before the full rollout of smart meters is complete. The requirement to offer single-rate tariffs to restricted



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switch supplier and make Citizens Advice become a recognised provider of information and support to customers on restricted meters.

meter customers is one of only two remedies introduced by the CMA that does not apply to small suppliers.

25 Transitional price cap for annual prepayment customers from 2017 to the end of 2020

The CMA recognise that their remedies (and the introduction of smart metering) will not have an immediate effect on the market and, as a result, there will be a continued detriment arising from the domestic AEC. Applying the prepayment price cap, will go some way towards mitigating the impacts of this delay. For example, the CMA’s analysis suggests that the prepayment price cap would have resulted in a reduction in the average bill of a prepayment customer of 8% in Q2 2015. Such a large fall in prepayment prices could result in significant impacts to the revenues of some suppliers.

The remedy is also likely to impact Ofgem. After the CMA has set the initial level of the cap (using a reference price and cost index approach), the role of updating it will be controversial and likely to fall to Ofgem.

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Broad range of modifications to microbusiness contracts including additional requirements on tariff disclosure and prohibition of certain conditions in auto-rollover contracts

The additional reporting requirements for suppliers will add some costs to suppliers, as will the inability to apply termination fees to OOC, evergreen and default rollover contracts.

28

Establishment of programme to promote engagement of microbusinesses through changes in the information microbusiness customers receive

Similar to remedy 15, but for the Microbusiness sector.

29,30

A requirement on suppliers to disclose data to Ofgem on disengaged microbusiness customers to be used in a newly created Disengaged Customer Database

Similar to remedies 20/21 but for the Microbusiness sector. To be eligible for inclusion in the database a microbusiness customer must have been on their suppliers’ default contract for three or more years.



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31 DECC to amend legislation in order to clarify Ofgem’s statutory objectives and duties

This remedy would strengthen Ofgem’s remit to promote effective competition in the sector through revisions to Ofgem’s statutory duty to give regard to other measures to protect consumers other than the promotion of effective competition. The cost of implementing such a change will be low, and the extent to which the clarification would make a material difference to Ofgem’s decisions is questionable.

32

DECC and Ofgem to publish detailed joint statements concerning proposed DECC policy objectives that are likely to necessitate parallel, or consequential, Ofgem interventions

The CMA notes that the relationship between Ofgem and DECC could be recalibrated in order to recognise Ofgem’s independence and enhance coordination. This remedy is likely to be low impact outside Whitehall. It is aimed at creating greater coordination of regulatory duties and policy objectives between Ofgem and DECC.

33

Ofgem to publish an annual State of the Market Report and modify the generation and supply licence conditions of the Six Large Energy Firms’

This will result in additional reporting requirements for suppliers and generators, which will be specified in modifications to their licence requirements. The remedy also specifies the creation of a new unit within Ofgem to centralise expertise and manage delivery of the new responsibility.

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Ofgem to publish a cross-cutting strategic

direction for code development (the ‘Strategic

Direction’) and to be given the power to

modify industry codes in certain exceptional

circumstances

Setting a “Strategic Direction” for code development represents a significantly more proactive role for Ofgem. The remedy also gives more power to Ofgem to implement ongoing modifications to the codes.



Appendix – Summary of the CMA’s remedies In CMA’s provisional findings report, it highlighted the following features of the market as having an adverse effect on competition (AEC):

1. The mechanisms for allocating Contracts for Difference (CfDs).

2. The absence of locational adjustments for transmission losses.

3. Electricity and gas electricity settlement processes.

4. Prepayment customers, weak customer response from domestic customers and the ‘simpler choices’ component of the Retail Market Review rules.

5. Weak customer response from microbusiness.

6. Governance of regulatory framework and industry codes.

For each of these AECs, we have:

set out the remedies proposed by the CMA to address the AEC;

identified the stakeholder(s) responsible for implementing the remedy; and

provided additional details relating to the specific features and/or implementation of the remedy.



1. The mechanism for allocating future Contracts for Difference (CfDs)

The CMA believes that DECC’s decision to allocate early Contracts for Difference (CfDs) through an administrative rather than a competitive allocation process is likely to have led to consumers paying substantially higher costs.

The CMA also questions the evidence for allocating the CfD budgets into pots for different technologies. They suggest that it is unclear whether this approach provides value for money for consumers. The CMA calls for greater transparency in future.

The CMA makes clear that it is not considering any remedies that would “undo” any of the CfDs already granted.

Proposed remedy

Responsible

stakeholders

Remedy-specific details

1

Undertake and consult on a clear and thorough

impact assessment before awarding any CfD

outside the CfD auction mechanism

DECC Impact assessment should clearly explain why DECC considers that the project is

not feasible for the competitive auction process.

Consultation should occur at two stages:

Before entering into negotiations with prospective generators

After negotiations with prospective generators and the provisional agreement

of a strike price.

2 Undertake and consult on a clear and thorough

assessment of the appropriate allocation of

technologies and CfD budgets between pots

DECC Consultation should focus on the extent to which short-run costs of supporting low

carbon generation are affected by DECC decisions.

DECC’s proposals for the allocation of technology and budgets should be finalised

at least one year ahead of auction.



2. Absence of locational adjustments for transmission losses

The CMA has suggested that the lack of locational pricing for transmission results in:

higher short-run costs and inefficient signals for electricity consumption; and

higher long-run costs as a result of inefficient decisions in relation to new investment in generation or plant extensions and closures.

The introduction of locational pricing for transmission losses should favour existing generation in areas of high demand such as London and the South East and disadvantage generators in more remote areas. It would also make future generation projects in remote areas more expensive.

Proposed remedy

Responsible

stakeholders


3

An order (the ‘Locational Pricing Order’) on

National Grid (and amendments to National

Grid’s licence conditions)

National Grid The Locational Pricing Order and licence amendments would set out:

the formula to calculate the transmission loss factors, which feed into the

imbalance charges, for this purpose

an obligation on National Grid to create a load flow model and a networking

mapping statement and collect relevant network data on an annual basis

an obligation on National Grid to appoint third party agents to collect metered

volumes data and to calculate annually the transmission loss factors pursuant to

the principles set out in the order

an obligation on National Grid to direct Elexon, as appropriate, to update the

networking mapping statement and carry out other administrative tasks that are

necessary to the calculation by the third party agents

an obligation on National Grid to raise any consequential code modification

4 Support National Grid by taking necessary steps

that might facilitate the implementation of the

Locational Pricing Order

Ofgem



3. Electricity and gas settlement processes

The CMA has suggested that the settlement processes that arise due to the advance purchase of gas and electricity by suppliers is a potential area of competition concern. In particular, without timely and accurate settlement, suppliers are unlikely to be incentivised to deliver the best outcomes for customers.

Remedies to improve the electricity settlement process

Proposed remedy

Responsible

stakeholders


5

Consult on amending the provisions of the Smart

Energy Code that prohibit suppliers from

collecting consumption data with greater

granularity than daily unless a customer has

given explicit consent to do so

DECC Amendment of the Smart Energy Code should focus on the removal of the “opt-in”

clause, which prohibits suppliers from collecting electricity consumption data on a

more granular than daily basis unless a customer explicitly consented.

6 Carry out a full cost benefit analysis of the move

to mandatory half-hourly settlement, including

analysis of costs, benefits and distributional

implications as well as mitigating measures

Ofgem The remedy also recommends that Ofgem should:

start the process of gathering evidence for the analysis as soon as practicable;

consider the cost-effectiveness of alternative design options for half-hourly

settlement such as a centralised entity responsible for data collection and

aggregation; and

consider options for reducing the costs of elective half-hourly settlement, including

(i) whether any of these options are likely to delay or accelerate the adoption of

mandatory half-hourly settlement; and (ii) any challenges that may arise or

benefits that may accrue from the existence of two settlement systems, including in

particular the possibility of gaming/cherry picking behaviour.

7 Publish and consult on a plan setting out the aim

and approach for half-hourly settlement

DECC and Ofgem The plan should include:

a list of proposed regulatory interventions (including code changes), relevant

considerations;



Proposed remedy

Responsible

stakeholders


the relevant entity in charge of designing and/or approving such interventions,

that are necessary in order to implement the half-hourly settlement reform; and

an estimated timetable for the completion of each necessary intervention.

Remedies to improve the gas settlement process

Proposed remedy

Responsible

stakeholders


8

Implementation of Project Nexus by 1 October

2016

Ofgem To be achieved through monitoring closely the progress made by the industry in

meeting intermediate milestones and taking (where appropriate) further measures

to achieve this objective

9 An order on gas suppliers (and amendments to

gas suppliers’ standard licence conditions) to

submit all meter readings for non-daily

metered supply points in GB to Xoserve as

soon as they become available

Gas suppliers Submissions must be made at least once per year, save for non-daily metered

supply points with a smart or advanced meter, which must be submitted at least

once per month

10 Development and delivery of a performance

assurance framework to increase accuracy of

the gas settlement process as soon as

reasonably practicable, and at the latest within

one year of our final report

Ofgem Implementation of this remedy also recommends that Ofgem:

establish a project plan and allocate responsibility to Uniform Network Code

parties to take actions for its implementation;

supervise its implementation; and

take appropriate steps to ensure that failure to meet targets under the performance

assurance framework are sanctioned



4. Prepayment customers, weak customer response from domestic customers and the ‘simpler choices’ component of the Retail Market Review rules

The CMA thinks that the “simpler choices” component of Ofgem’s Retail Market Review (RMR) rules undermines competition. The relevant RMR provisions include the ban on complex tariffs, the maximum limit on the number of tariffs that suppliers are able to offer at any point in time, and the rules on discounts and bundling.

The CMA is also concerned about the impact on competition of 1) the limited awareness of and interest in domestic customers’ ability to switch supplier; 2) complex information provided in bills, the structure of tariffs and a lack of confidence in and access to price comparison websites; 3) uncertified meters or erroneous transfers; and 4) associated technical constraints of prepayment meters.

Proposed remedies specific to the Prepayment AEC

Proposed remedy

Responsible

stakeholders


11

Allow suppliers to set prices to prepayment

customers on the basis of regional cost

variations

Ofgem Modify suppliers licence condition to allow suppliers to set prices to prepayment

customers on the basis of regional cost variations which are applied to other

payment methods within the same core tariff

Ensure that changes to the Debt Assignment Protocol are implemented by the end

of 2016

12 Gas tariff pages – Capping and ability for

Ofgem to transfer

Six largest

suppliers

Ofgem to take responsibility for the efficient allocation of gas tariff pages

Undertakings from the six largest suppliers to:

Cap the number of gas tariff pages that a suppler can hold (at 12)

Provide relevant information for Ofgem to monitor the allocation of gas tariff

codes

Allow Ofgem to mandate the transfer of one or more gas tariff pages to

another supplier

13 Change in licence condition to achieve the

above

Ofgem In the absence of the undertaking from the Big Six, recommendation that Ofgem

achieve these aims through a new licence condition



Proposed remedies concerning the RMR AEC

Proposed remedy

Responsible

stakeholders


14 Withdrawal of the simpler choices component

of the retail market review

Ofgem Removal of the following conditions

Ban on complex tariffs

The four tariff rule

Ban on certain discounts, bundled products, reward points

Prohibition against tariffs which would be exclusive (to new/existing

customers).

Introduce an additional standard of conduct on the design of tariffs so that

customers can easily compare value-for-money with other tariffs suppliers offer.

Remove the Whole of the Market requirement in the confidence code and

introduce a requirement for price comparison websites (PCWs) to be transparent

on the market coverage they provide.

Proposed remedies concerning the Prepayment AEC and the Domestic Weak Customer Response AEC

Proposed remedy

Responsible

stakeholders


15 Establishment of programme to promote

engagement in the domestic retail market

Ofgem and

suppliers

Programme to identify, test and implement measures to provide domestic

customers with different or additional information with the aim of improving

engagement in the domestic retail energy market. This includes the use of

Randomised Controlled Trials to test approaches where appropriate. Suggested

measures are:

changes to the information in domestic bills and how this is presented

including a market-wide cheapest tariff message;



Proposed remedy

Responsible

stakeholders


changes to the specific messaging that domestic customers receive in bills

once they move, or are moved, on to an Standard Variable Tariff and/or other

default tariffs; and

changes to the name of the default tariffs.

16 Changes in licence conditions or introduction

of legislation to achieve the above

Ofgem or DECC Modification of licence conditions by Ofgem to participate in above; or

DECC to introduce legislation requiring suppliers to participate in Ofgem-led

research.

17 Price comparison websites (PCWs) gain access

to the ECOES database

Gemserv An order on Gemserv to give PCWs access upon request to the ECOES database

(Electricity Central Online Enquire Service) on reasonable terms and subject to

satisfaction of reasonable access conditions.

18 Price comparison websites (PCWs) gain access

to the SCOGES database

Xoserve An order on Xoserve to give PCWs access upon request to the SCOGES (Single

Centralised Online Gas Enquiry Service) database on reasonable terms and subject

to satisfaction of reasonable access conditions.

19 Changes to the current specifications of Midata

phase two

DECC Mandatory participation for all gas and electricity suppliers

Scope increase to include greater detail on energy use and metering

PCWs able to seek consent on the frequency with which they can access customer

data

20 Disclosure to Ofgem of disengaged customers

data

All suppliers An order on gas and electricity suppliers to disclose customers who have been on

standard variable tariffs for three or more years. Data would be updated every six

months and held in a secure cloud database. This would enable rival suppliers to

use the data for the purpose of postal marketing.

Prior to suppliers disclosing this data, a letter would be sent to each disengaged

customer explaining the use of their data, including an opt out mechanism.

21 Creation and operation of Disengaged

Customer Database

Ofgem Ofgem to create, operate and maintain a cloud database for the purpose of storing

the data submitted by gas and electricity companies above.



Proposed remedy

Responsible

stakeholders


22 Make all single-rate electricity tariffs available

to all customers on restricted meters

Suppliers with

>50,000 domestic

customers

An order:

requiring such suppliers to make all their single-rate electricity tariffs

available to all (existing and new) domestic electricity customers on restricted

meters

Prohibiting such suppliers from making their single-rate electricity tariffs

conditional upon the replacement of their existing meter.

23 Reminders for electricity customers with

restricted use meters

All suppliers An order requiring suppliers to remind domestic electricity customers on restricted

meters that they have the option to:

switch supplier

switch to a single-rate tariff without having to change their meter or incur

replacement costs

Provide customers on restricted meters contact details for Citizens Advice

Provide Citizens Advice with the information it may reasonably require concerning

customers on restricted meters in the format specified by Citizens Advice.

24 Citizens Advice become a registered provider

of information

Citizens Advice Citizens Advice to become a recognised provider of information and support to

domestic electricity customers on restricted meters.

25 Price regulation for annual prepayment

customers until the end of 2020

All suppliers An order requiring suppliers to ensure that the annual bills paid by prepayment

customers do not exceed a benchmark reference level, for a period until the end of

2020 (assuming a pre-determined consumption level).



5. Weak customer response from microbusinesses

The CMA’s analysis has highlighted that prices for the microbusiness customers of the six largest suppliers could have been on average 6% lower (£230 million per

year) between 2007 and 2014 in a better-functioning market. The strategic themes drawn out for this sector of customers are similar to those in the domestic energy

sector, with a focus on:

creating a framework for effective competition

helping customers engage; and

protecting customers who are less able to engage to exploit the benefits of competition

Proposed remedy

Responsible

stakeholders


26 Broad range of modifications to microbusiness

contracts

All suppliers An order requiring that:

Suppliers disclose the prices of all available acquisition and retention

contracts to non-domestic customers falling within a defined category. Either

through their own website or via a third party platform

Suppliers disclose the prices of all their out of contract and deemed contracts

on their website

Suppliers are prohibited from including conditions in auto-rollover contracts

that:

(1) prohibit a microbusiness customer from giving a termination notice up to

the last day of the initial fixed-term period;

(2) prohibit the microbusiness customer from giving a termination notice up

to the last day of the fixed-term roll-over period; and

(3) impose a termination fee and/or no-exit clause for the roll-over period

suppliers are prohibited from transferring microbusinesses to higher priced

contracts (in auto-rollover contracts) during their notice period

suppliers are prohibited from including termination fees in their existing and

future out-of-contract and evergreen contracts.



Proposed remedy

Responsible

stakeholders


27 Licence condition modifications to implement

the above

Ofgem Ofgem to make any necessary minor consequential amendments to the suppliers’

standard licence conditions.

28 Establishment of programme to promote

engagement of microbusinesses by providing

different information

Ofgem A recommendation that Ofgem establish a programme to identify, test and

implement measures to provide microbusiness customers with different or

additional information with the aim of promoting engagement

29 Disclosure to Ofgem of disengaged customers

data

All suppliers An order on gas and electricity suppliers to disclose customers who have been on

default contract for three or more years. Data would be updated every six months

and held in a secure cloud database. This would enable rival suppliers to use the

data for the purpose of postal marketing.

30 Creation and operation of Disengaged

Customer Database

Ofgem Ofgem to create, operate and maintain a cloud database for the purpose of storing

the data submitted by gas and electricity companies above



6. Governance of regulatory framework and industry codes

The CMA found that the regulatory framework may inhibit Ofgem’s ability to promote effective competition. This was due in part to existing legislation but was also attributed to a lack of formal coordination between DECC and Ofgem’s activities.

The CMA also suggests that the current industry-led code governance system does not deliver the timely change that is needed to support competition, innovation or wider policy objectives. The system also places a material burden on parties to the codes, particularly the smaller parties. In addition Ofgem is found not to have sufficient ability to influence the development and implementation phases of the code modification process.

Remedies to address industry governance issues

Proposed remedy

Responsible

stakeholders


31 Amend legislation in order to clarify Ofgem’s

statutory objectives and duties

DECC This should be initiated with a view to:

delete paragraph 1C from both sections 4AA of the Gas Act 1986 and 3A of the

Electricity Act 19891; and

set up a clear and established process for Ofgem to comment publicly, by

publishing opinions, on all draft legislation and policy proposals which are relevant

to Ofgem’s statutory objectives and which are likely to have a material impact on

the GB energy markets.

32 Publish detailed joint statements concerning

proposed DECC policy objectives that are

DECC and Ofgem These statements should set out:

1 This paragraph of the Act(s) specified in the Energy Act 2010 states “Before deciding to carry out functions under this Part in a particular manner with a view to promoting

competition as mentioned in subsection (1B), the Secretary of State or the Authority shall consider — (a) to what extent the interests referred to in subsection (1) of consumers would be

protected by that manner of carrying out those functions; and (b) whether there is any other manner (whether or not it would promote competition as mentioned in subsection (1B)) in

which the Secretary of State or the Authority (as the case may be) could carry out those functions which would better protect those interests.”



Proposed remedy

Responsible

stakeholders


likely to necessitate parallel, or consequential,

Ofgem interventions

a proposed action plan for the regulatory interventions needed and responsibility

for these;

an estimated timetable; and

a list of relevant considerations in designing the policy.

33 Publish an annual State of the Market Report

and modify the generation and supply licence

conditions of the Six Large Energy Firms’

Ofgem The State of the Market Report should provide analysis of:

the evolution of energy prices and bills over time;

the profitability of key players in the markets (e.g. the Six Large Energy Firms);

the social costs and benefits of policies;

the impact of initiatives relating to decarbonisation and security of supply;

the trilemma trade-offs; and

the trends for the forthcoming year.

It may be necessary to create a new unit within Ofgem, which would build expertise

across the different areas of the energy markets with a view to publish annually the

State of the Market Report.

The generation and supply licence conditions of the Six Large Energy Firms should be

modified by introducing requirements to:

report their generation and retail supply activities on market rather than divisional

lines;

report a balance sheet as well as profit and loss account separately for their

generation and retail supply activities;

disaggregate their wholesale energy costs for retail supply between a standardised

purchase opportunity cost and a residual element; and

report prior year figures prepared on the same basis.



Remedies related to industry codes

Proposed remedy

Responsible

stakeholders


34

Publish a cross-cutting strategic direction for

code development (the ‘Strategic Direction’)

Ofgem Ofgem is to:

oversee the annual development of code-specific work plans for the purpose of

ensuring the delivery of the Strategic Direction;

establish and administer a consultative board that would bring stakeholders

together for the purpose of discussing and addressing cross-cutting issues;

initiate and prioritise modification proposals that, in its view, are necessary for the

delivery of the Strategic Direction;

in exceptional circumstances, intervene to take substantive and procedural control

of an ongoing strategically important modification proposal, as appropriate; and

modify the licence conditions of code administrators to introduce the ability for the

administrator to initiate and prioritise modification proposals that, in its view, are

necessary for the delivery of the Strategic Direction or to improve the efficiency of

governance arrangements.

35 Initiate a legislative programme with a view to

giving Ofgem the power to modify industry

codes in certain exceptional circumstances

DECC This would also set out the provision of code administration and delivery services

activities that are licensed by Ofgem and specifying that such licence conditions

will include appropriate targets to incentivise code administrators to take on an

expanded role to be able to deliver pursuant to the Strategic Direction



Contacts To have a more detailed discussion on any of the comments in this document, please contact:

Steve Jennings UK Power and Utilities Leader

T: +44 (0)7704 564513 E: [email protected]

Stuart Cook Head of Utility Strategy and

Regulation T: +44 (0)7764 988771

E: [email protected]

Stefan Bojanowski Utilities Strategy and Regulation

T: +44 (0) 7725 632994 E: [email protected]

Please subscribe to our blog: http://pwc.blogs.com/energy_spotlight/

mailto:[email protected]

This publication has been prepared for general guidance on matters of interest only, and does not constitute professional advice. You should not act upon the information contained in this publication without obtaining specific professional advice. No representation or warranty (express or implied) is given as to the accuracy or completeness of the information contained in this publication, and, to the extent permitted by law, PricewaterhouseCoopers LLP, its members, employees and agents do not accept or assume any liability, responsibility or duty of care for any consequences of you or anyone else acting, or refraining to act, in reliance on the information contained in this publication or for any decision based on it.

© 2016 PricewaterhouseCoopers LLP. All rights reserved. In this document, "PwC" refers to the UK member firm, and may sometimes refer to the PwC network. Each member firm is a separate legal entity. Please see www.pwc.com/structure for further details.

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Documents

The CMA Energy Market investigation - PwC UK · As part of this remedy, the CMA propose introducing an additional standard of conduct on the ... The CMA estimates that this remedy