Rest In Pieces: The Competition Commission
John Robertson, member of the Cross Party Energy and Climate Change committee went on public record saying: “The biggest opacity is the profit making itself, if you look at the bill you get through the door, the understanding you have of it. There is a need for the companies to explain how they make their profit and where; also make it easy for the consumer to understand their bill. We can see what is happening on the retail side, but not on the generation side of the equation.
The companies are jealously guarding their information. It is strange that you have six large companies, who all charge roughly the same, have roughly the same increases in price, and yet they are all meant to be in competition with each other”
The BBC Radio 4 Today Programme with John Humphrys and Evan Davis interviewed him : “Does this mean that competition is working so well that if one company steps out of line, it will lose the market share completely ?”. John Robertson answered “If you think that six companies will work in the exact same way, with the exact same rises, and the exact same profits; someone, somewhere along the line has to undercut – as you see with the supermarkets where there is undercutting. Rather than it being a case where it is a race to the lowest common denominator, it seems to be a race to see how much can be made and to see how high prices can be driven.
Ofgem’s ‘light-touch’ regulation has not worked. Ofgem are very slow in doing things and in effect are not very hard on these companies. Ofgem need to be a bit harder and a lot quicker in doing what they do. The energy companies should be worried when Ofgem start looking at them, rather than just ignoring them.”
On the program Sarah Harrison, senior partner at Ofgem responded to accusations of regulatory capture: “Have you been captured by the energy companies ? Are you slow and unambitious as the report suggests ?”. Her response was “Our goal is to protect customers, that is what we are charged with doing; The main tool we have to do this with, in respect to the retail and wholesale market, is competition. At the heart of this is the question ‘how strong is competition in bearing down on prices and profits’. There is a raft of reforms in the retail and wholesale market, which is about driving stronger competition, and making things simpler, clearer and fairer for energy consumers.”
“Do you think the much higher price of energy, than we have been used to in recent history, is a reflection of fair competition which has worked, and has just happened to deliver high prices or do you think there is an element of profiteering, rip off, failure of competition, and companies thus getting away with overcharging ?”. She answered: “We are in a higher price energy environment because we are factoring in the environmental costs of energy production which has not been done in the past.”
Answering questions about dealing with negative externalities such as environmental pollution, John Robertson suggested… “If the government wants to load environmental obligations into our energy market to meet our greenhouse gas emmissions targets; it should be paid for by tax rather than through energy bills. By putting it onto the bills and hiding the costs in other places, it is hidden from people; it comes down to transparency – if you put it on your tax bill, everyone is paying it anyway, the good thing is that people who are suffering the most (fuel poverty) would get protected the most; this recommendation is thought to be fairer by the all party group Energy and Climate Change Select Committee”
Responding to questions about lack of competition and monopoly in the energy market, Ofgem’s Sarah Harrison said “Our assessment of the energy markets is that ‘competition has not been working as effectively as it should be’ which is why we are putting through reforms. So in the retail market, we want to reduce the number of energy tarriffs, we want to remove complex two tier pricing, and we are introducing powers to require the energy suppliers to treat energy customers fairly.
In the wholesale market, we need to see a better deal for smaller independent suppliers and smaller generators, and our proposals there are to require the big six companies, to publish on a forward looking basis, out two years their prices and to commit to trade at those prices; and that should enable those smaller independent suppliers and generators to come into the market, get the products they need and to compete more fairly.
Ofgem raised issues in 2008 about whether the market was functioning properly, here we are 2013, and still Ofgem are saying the same thing. Ofgem put in place some changes in 2008, and the companies did not respond to them effectively as they should have done. The ball is back in the energy companies court, Ofgem have a deeper set of proposals, and the call is for the energy companies to get behind those proposals and put them in place. If they dont, the option is for Ofgem to put this market forward to the competitions commission.”
Energy and Climate Change cross party select committee – Fifth Report: Energy Prices, Profits and Poverty; We need common economic literacies for people to become involved in an informed debate – http://www.publications.
parliament.uk/pa/cm201314/ cmselect/cmenergy/108/10802. htm
Whichever way I look at it, personally I think that there is something for empowered regulators to investigate regarding the way that energy companies are operating. The legal and human rights issues are coming to the fore now and we should all, as individuals, be aware of complicity. I am suffering from fuel poverty and have taken special interest in learning the facts from some of the most respected of sources. By turning a blind eye to to manipulative billing systems and dissonant voices coming from energy suppliers, we happily let our culture erode to the beat of the drum of profit making beyond ethics and agreed law….
It is good news that the competition commission is being called in to investigate the operations of the energy market. The Competition Commission (CC) is an independent public body which helps to ensure healthy competition between companies in the UK for the ultimate benefit of consumers and the economy. It conducts in-depth investigations into mergers and markets and also has certain functions with regard to the major regulated industries.
The competition commission, however, does not initiate inquiries independently. All its activities are undertaken following a reference to it by another authority, most primarily the Office of Fair Trading:
- Mergers are referred for investigation by the Office of Fair Trading (OFT) or, sometimes, the Secretary of State.
- Market investigations may be referred by the OFT, sector regulators (for markets falling within their sectoral jurisdictions) or the Secretary of State.
- Reviews of merger/market investigation remedies may be referred by the OFT.
- Regulatory references and appeals can be made by the sector regulators in gas, electricity, energy, water and sewerage, railways, airports and postal services.
Tony Cocker, the chief executive of EON Energy, said he had written to Prime Minister David Cameron to suggest a full investigation into the energy market saying…
If this is coming from within the energy sector itself, it is surely a sign that a public audit needs to take place. My personal feeling is that we should support this call for a Competitions Commission inquiry by writing to the Office of Fair Trading requesting one. The best recourse is to invoke the law and become personally invested in this matter which is bringing about financial, social and health crisis.
The worrying thing is that since these articles the Competition Commission has been closed down – Hhhmmmmmmmmm….. This comes at a time when it is most needed. The Competition Commission closed on 1 April 2014. Its functions have transferred to the Competition and Markets Authority (CMA). The drag which comes with such a reshuffle is of concern and I will be watching this development with an attentive eye.
After getting advice on how to deal with my tricky energy supplier – SSE, I was told that one such way to contribute to this situation is by simply documenting my experience with your energy supplier and insisting on communicating with them via email so that there is a legal document of your interactions and the outcomes of any dialogues. By providing them in a structured investigation, it will aid the process of the empowered regulators.
Alternatively, if you own shares in these companies, it is important that you think through the moral responsibilities of ownership. You may also check with your pension fund as to whether it is invested in the commodities market; if it is, then it is highly likely that you have an investment link to these companies. Transparency needs to be brought back into this vital area of life, and this is in part my contribution to supporting its generation.
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