Will CMA Plans Stimulate Energy Competition in the UK?

This week the Competition and Markets Authority (CMA) announced the results of an 18-month investigation into competition in the UK energy market. The main headline concludes that customers are being overcharged by almost £2bn annually and something has to be done to stimulate more competition.

There are two main proposals for action. First is a cap on the price that customers using pre-payment meters can be charged. This is aimed at addressing the problem of customers who find it difficult to arrange post-payment options due to credit rating issues or just something as simple as tenants in a property where the landlord would prefer pre-payment to be used. Historically these customers have been charged higher rates even though they are likely to be the least able to pay.

Second is a database of customers who have been paying the standard tariff at any company for three years or longer. The database would be available to all energy companies and therefore will allow all the energy companies to see who is disengaged and has not been interested in switching – in addition to knowing that the customer is not on any promotional tariff.

It is proposed that any companies wanting to contact customers would have to use post as a contact channel. So at least the publication of this database will not mean a deluge of phone calls and text messages.

Customers will be contacted before being added to the database and given the ability to opt-out. So if you are happy with your energy provider and don’t want to be contacted then it is possible to opt out of communications, but the default is that you would go into the database if you are a customer who has not switched for more than three years.

At present this is just a proposal and the CMA will be taking further evidence and ideas to improve these proposals before a final report in June, but I like their approach. First, it’s a good thing to deal with the pre-payment issue. Some customers have no choice but to use pre-payment and they should not be penalised with excessive rates.

The database of customers is the most interesting proposal though. The fact that competition exists and it is easy to switch energy provider has not been enough to actually stimulate real competition because inertia exists – customers need a reason to switch and most are happy to just keep paying the same provider they always used.

If providers can find out who has not switched for years and directly market special deals to them in a fairly unobtrusive way then I think it really could stimulate more competition in the marketplace. It also encourages all the energy companies to up their game on the customer experience because it is price and service that determine where customers buy their energy. If you can be confident that you are offering a competitive price and great service then it’s likely you can retain customers even with the competition sending them offers in the post.

What do you think? Are those who have not switched for the past three years already aware of the options they have or will this move to allow companies to market to them differently be a useful change, allowing competition to act better because the customer is better informed? Leave a comment here or get in touch direct via my LinkedIn.

National Grid

Photo by William licensed under Creative Commons.

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