Do people have the energy to switch? 23 February 2015 Over 90% of UK households

Question

Do people have the energy to switch? 23 February 2015 Over 90% of UK households buy their gas and electricity from one of the big six' energy suppliers-British Gas (Centrica), EDF, E.ON, npower (RWE), Scottish Power (Iberdrola) and SSE. The big six are currently being investigated by the Competition and Markets Authority (CMA) for possible breach of a dominant market position. An updated 'issues statement' summarises the investigation group's initial thinking based on the evidence it has received. In paragraph 16 it states Comparing all available domestic tarifs - including those offered by the independent suppliers - we calculate that, over the period Quarter 1 2012 to Quarter 2 2014, over 95% of the dual fuel customers of the Six Large Energy Firms could have saved by switching tariff and/or supplier and that the average saving available to these customers was between £158 and £234 a year depending on the supplier) Between 40% and 50% of customers have been with a supplier for more than 10 years. The companies are thus accused of exploiting these ‘loyalty, customers, many of whom are too busy or ill-informed to switch to an alternative supplier. According to the uSwitch article below: This is a particular issue for the most vulnerable of customers, including the elderly, who view switching as 'impossible But the elderly were not the only consumers losing out, the CMA found that those customers most likely to be on expensive standard tariffs were less educated, or on lower incomes, or single parents, and did not necessarily have access to the Internet. And the problem of penalising 'loyalty' customers who do not shop around applies in other industries, most notably banking. People who regularly switch savings accounts can get higher interest rates, often for a temporary introductory' period. Similarly, people who regularly transfer credit card debt from one card to another can take advantage of low interest rate, or even zero interest rate, deals for an introductory period. Returning to the energy industry. Is the problem one of oligopoly? Do the big six have too much market power and, if so, what can be done about it? Should they be split up? Should regulation

Explanation / Answer

In recent years UK has taken multiple reforms in energy market. Competition and Market authority has done an in-depth market investigation. There is lot of effects of this current regulation on competition. The broader regulatory framework including current system of code of governence play a role to be a barrier to pro-competitive innovation. The CMA has investigated that industry codes acts could be a act which is a barrier to entry and change. The codes which are used basically distort the incentives. These distorting incentives against the competition and these codes play a role to distorting incentives. The energy suppliers faces weak incentives on price and non-price factors in retail market. This regulation and codes also play a role in increasing barriers to entry and it also discourages the innovation and change. The elements of code system affect the competition. In particularly we can say for sma;ller companies there are no fixed deadlines for taking decisions under the codes and it is basically a potentially beneficial reforms. So energy regulation is becoming a barriers to pro-competitive innovation and change.

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