With the Competition and Markets Authority (CMA) inquiry under way now is the time to think radically about how things are done in the energy industry - especially if there are ways to strengthen competition, increase transparency and engage more customers by simplifying the market. We need to ask the right questions and come up with answers that make meaningful changes that improve customers’ experience of the energy market for the long term.
That’s why we should look at a ‘national’ approach to the pricing of electricity and gas, for example. For a number of reasons, but mainly because of the different geographical issues associated with transporting energy, the charges for using networks - the pipes and wires that deliver gas and electricity to people’s homes – currently vary by region.
There are 14 such regions across the Great Britain electricity market, which means suppliers have to charge up to 14 different prices. At SSE we already do what we can to simplify things and rationalise these 14 regions down to just five when we set our prices. However, while there are pros and cons to any approach to pricing, if one of the goals of the CMA inquiry is to make it easier for customers to identify the best deal for them, replacing these regional charges with a national charge has to be a serious option. Instead of up to 14 different prices, each supplier would have one, whether the customer lives in Stirling, Sheffield or Swansea.
How this would happen in practice would need some detailed work, but the introduction of national pricing would require a ‘clearing house’ to effectively collect network charges and distribute them to the companies that own and operate the wires and pipes, and there are in place organisations that already carry out work of this kind. And while the impact on a typical dual customer’s bill is likely to be well under 5% either way, it may make sense to phase in changes to avoid too much price disturbance.
The benefits of making the market simpler and more engaging and stimulating competition could make this worthwhile. It would reduce the number of steps household or small business customers need to take to find the best deal, make it easier for third parties to provide clear advice on the cheapest tariffs for different types of customer and reduce some of the complexities involved in supplying energy, especially for smaller companies. It would make it easier for suppliers to compete on price on the energy part of the bill.
The CMA inquiry will look at many things over the next year and a half and I hope that simplicity and transparency are at the heart of any recommendations it makes.
We need to ask the right questions and come up with the right answers. National pricing is certainly among the right questions and may well be one of the right answers as well.