A Regulator’s Price Comparison Website is Not Sensible: comment on Catherine Waddams’s blog post

(by Stephen Littlechild) Catherine, I enjoyed your stimulating blog today. You are quite right to point out that CCP anticipated and confirmed the adverse effects that Ofgem’s non-discrimination clause had on competition, as now confirmed by the CMA. And I entirely agree with you that the proposed protective tariff for those that do not switch is very ill-advised. But I am puzzled why you consider it very sensible that Ofgem set up an independent price comparator website [PCW] for domestic customers.

If we had no such price comparison sites in the UK then there might be a case. I quite agree about the contribution such sites can make in reducing transactions costs for customers. But as far as I can see, having explored this somewhat over the years, we have in the UK more, and more effective and innovative, comparison sites covering the energy sector than in any other country in the world. This seems to be an extremely competitive and successful market.

So I cannot see the CMA’s case for introducing yet another site run by the regulator and presumably paid for by a levy on suppliers and hence on customers. What is it supposed to provide that other sites do not? There has been no suggestion that the offers compared there are inaccurate, and many sites are now claiming to list all the offers available.

The CMA says: “The rationale for setting up an independent price comparison service with all available tariffs listed is to allow domestic customers who have concerns about the quotes they receive on other PCWs to use this service to check the tariffs that they have been quoted elsewhere. Therefore, the aim of this remedy is to increase customers’ trust in the services offered by PCWs, encouraging engagement and switching.” This is implausible. The very setting up and advertising of such a site would announce to customers that Ofgem regards the service provided by PCWs as untrustworthy. The proposal would reduce trust, not increase it.

I have talked to several regulators in the US that do provide such regulatory websites. None of them regard their sites as satisfactory. Several told me they are embarrassed at how inadequate their sites are, but there were no funds or political support for improving them. Nowadays, an effective website is a very expensive proposition, and probably also a risky one.

In Texas only those tariff offers meeting certain specifications are listed. No one knows what proportion this is but it is conjectured to be about half the total offers in the market. And the specification of these tariff offers requires the specification of the average price at a specified consumption level. I am told that the companies have discovered how to game this by various surcharges and discounts for under- and over-consumption such that they are indeed cheaper for the specified consumption levels but not for other many levels. The notion that a regulatory website can provide an authoritative picture is illusory. The presence of a variety of PCWs in the market, each using its preferred method to evaluate tariff offers, is the most effective way to protect customers.

You may know that at the time of domestic market opening in 1998, I made a conscious decision that Offer (i.e. Ofgem’s predecessor) should not operate a comparison website, but at the same time encouraged other parties to do so. That has been the firm position of Ofgem ever since, and I believe it is the right one. Nothing the CMA has said suggests that it was inappropriate and should be reversed. The CMA has made absolutely no credible case for Ofgem operating such a price comparison website in the domestic sector, and indeed has acknowledged that it may well not be possible for any website to list all offers in the foreseeable future.[1]

Stephen Littlechild

[1] My further views on the CMA proposals, especially the proposed price limit, can be found at http://www.telegraph.co.uk/finance/newsbysector/energy/11724476/Goldilocks-energy-price-limit-doesnt-bear-scrutiny.html

2 Responses to A Regulator’s Price Comparison Website is Not Sensible: comment on Catherine Waddams’s blog post

  1. Dear Catherine, like Stephen I liked your blog on the CMA remedies and was very interested in Stephen’s reply.

    If I may add, I was on the CC (as was) panel when we also recommended a website solution in the Home Credit case. That was evaluated in February 2013 by the CC (Understanding Past Market Investigation Remedies, Home Credit, February 2013). I have to say that the evidence on the effectiveness of the remedy is not particularly encouraging. Whilst is it true that the average user spends around 5 minutes on the site, the number of visitors (around 4,000 per month in 2012) is about 2% of home credit customers and 23% of visitors visit the site and leave immediately.

    One interesting finding, that I certainly did not expect, is that it does seem like the lenders themselves do regularly check the site. That may have the effect of raising competition. So this may be a route, but I am not sure I would want to hang everything on this particular remedy.

    With many thanks for your consistently interesting and informative blog.

    Jonathan Haskel, Imperial College

  2. Catherine Waddams says:

    Thank you, Stephen and Jonathan for sharing your doubts about and experiences with ‘publicly operated’ price comparison websites. It is worrying that there seems to have been such little success in this area, and there may be a tension between whether sites are trusted (because operated by a public body) and whether they are well used (which depends on advertising their existence and merits, a role at which public bodies may be less proficient). I agree that the costs should not be a burden on consumers if they cannot be made effective, It would be interesting to know if there are any publicly operated price comparison websites that are regarded as successful, either in energy or other sectors, whose example could be copied.

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