SSE has today responded to the four main theories of harm identified by the CMA as part of its investigation into the energy market in Great Britain. An overview of the key arguments in our response can be found here; it covers a wide range of topics, including wholesale market liquidity and vertical integration.
Whilst we believe that the market is performing well, we are also conscious that the customer is the most important person in the context of this investigation, and this blog therefore provides a quick summary of our views on the most important issues to arise from the CMA statement from a customer point of view.
Busting Myths
Throughout this investigation, we hope that the CMA will dispel some myths surrounding the energy market. For example, we do not offer less competitive tariffs to our ‘in area’ customers; regional differences in prices simply reflect the differences in network costs. Similarly, Ofgem’s assertion about ‘tacit co-ordination’ is flawed as there is no form of coordination, tacit or otherwise, between energy companies.
When setting prices we factor in many variables, including views on wholesale costs, the cost of government environmental and social schemes, and network charges to name but a few. All suppliers are therefore subject to a similar set of external pressures (as shown by the graph below), however, as you'd expect in a competitive market, each supplier will have a different strategy. For instance, SSE is the only supplier to have announced a price freeze until January 2016, a promise unmatched by any of our competitors several months after the announcement.
Targeting Regulation
There are many examples from recent years of Ofgem reforming the market in a way that delivers direct, practical benefit for customers. I think that the Tariff Information Label is a good method for ensuring that customers receive standardisation of information, for example. I think that the rules which ensure those on fixed tariffs rollover onto cheap ‘evergreen’ tariffs also protect customers who choose not to take action when their fixed deal ends.
However, there have also been interventions which have damaged competition, innovation, and customer engagement. Some tariffs which customers liked have been restricted by Ofgem (such as discounts for paying your bill on time) and – believe it or not – the complicated rules and regulations now make designing a bill which customers understand quite a difficult job. If you based it on what customers tell us they want, you'd get a very different result to all the information that’s on there. It shouldn't take a genius to read a basic energy bill.
At SSE we respect any regulation designed to protect customers, but customers are also busy people and cannot wait on the phone for hours to hear every term and condition, so a balance needs to be struck which allows customer service advisers to have a proper conversation with customers. At the moment, regulations can lead to conversations that customers simply find frustrating.
And of course, whilst SSE remains supportive of the principles behind the mandatory social and environmental schemes that are paid for through energy bills, we have consistently called for a clear commitment to reduce the costs of supplying energy. The costs of these schemes are rising (see graph above), so to ensure customers’ bills are minimised and that government policies are funded in the fairest possible way, these policy costs should be stripped from bills and funded in a fairer way, such as through taxation.
A Competitive Market
We are operating in a very competitive energy retail market, as demonstrated by the significant movements in market share of the players involved. Our own share has changed significantly over the last decade. We've grown from fifth to second-largest supplier, and are now seeing an ever-increasing share of customers switching to newer, smaller suppliers, who just last week reached the milestone of 2 million customers. Our customers are also very active. At SSE we have seen substantial activity from our customers. For example, the table below shows that only around 10% of our customers have never actively engaged with us, by either fixing their tariff, changing their payment plan, or changing their meter.
'In area' customers | 'Out of area' customers | All customers | |
Has not switched externally to SSE from another Supplier | 54% | 4% | 28% |
of which.. | |||
Has not signed up to other product (gas/telco/HS) | 39% | 1% | 19% |
of which.. | |||
Has not switched internally to fixed contract or reward scheme | 36% | 1% | 17% |
of which.. | |||
Has not switched internally to direct debit | 21% | 0% | 10% |
Where do we go from here?
At SSE, we believe that the evidence indicates that the retail market is working for customers, however there is always room for improvement. Whilst some regulation has been beneficial, some is a clear barrier to helping customers, and SSE would encourage the CMA to look at which parts are helping and which are hindering customers’ experience of the energy market. I think there are “easy wins” on the bill, for example, where a change in approach to regulation could really help customers.
I think another reform that is long overdue is the removal of government policy costs from customer bills. I know that the CMA may be reluctant to call this into scope, but eventually we need to find a way to pay for these excellent initiatives in a fairer way. Finally, I think that the CMA should seriously consider examining whether the different regional costs of transporting electricity could be passed on to suppliers as one national charge, allowing for fewer tariffs and a simpler understanding of regional differences.
At SSE we have an appetite for reform and are ready to listen and work with all parties to improve the market for our customers.