An energy price cap could kill competition – here’s a better idea

May 3, 2017

(by Catherine Waddams) The Conservatives have announced that their manifesto will include a pledge to cap the price of energy bills. This comes just two years after Labour campaigned to freeze household energy prices. The Tories are yet to flesh out the details of their plan, but it has already drawn strong reactions both for and against. The price of energy stirs deep emotions in part because it is a necessity, one which absorbs a much higher proportion[1] of the income of those in poverty and “just about managing” than of richer households.

But there are two other important features: Read the rest of this entry »

The dangerously distorted incentives created by the CMA’s performance target

August 5, 2016

(by Bruce Lyons)[1]  The CMA has recently published its annual report and associated impact assessment.  Its performance management framework commits the CMA “to achieving direct financial benefit to consumers of at least ten times our cost to the taxpayer.” [Annual Report 2015-16, p.66].  Target setting and performance measurement are an important part of performance management.  However, the precise way that the government requires the CMA to justify its funding is dangerously distortionary. Read the rest of this entry »

The CMA’s Energy Market Remedies: Boxed into the Wrong Corner?

April 14, 2016

(By David Deller) In an earlier blog post, I provided an initial reaction to the CMA’s provisional remedies for the UK energy market. This blog post considers the underlying assumptions that appear to have provided the ‘envelope’ for the remedies that the CMA considers suitable and proportionate. I critique the CMA’s reasoning in three core areas: (i) the size of interventions that could be justified by the estimates of harm; (ii) why the headline harm estimates are likely to be overestimates; and (iii) the limited evidence for concluding that smart meters are a panacea to low consumer engagement. After such a lengthy investigation it is disappointing to see such weaknesses in reasoning. Read the rest of this entry »

How weak is customer response in the energy market, why, and what is the benchmark?

March 17, 2016

(by Catherine Waddams) In its provisional decision on remedies for the Energy Market, the Competition and Markets Authority measures weak customer response by the amount of money which is ‘left on the table’ by customers who do not switch to cheaper tariffs.  However, research at the Centre for Competition Policy shows that understanding such inertia is complex, and that consumers differ considerably in their propensity to change suppliers.  This variation is found even among comparatively well informed respondents who are aware of potential gains and the time it might take them to search for and switch to a better deal, and even after accounting for observable demographic and other factors, and for consumer expectations.  This matters both for designing an effective package of remedies and, in due course, for evaluating their success.  Why? Read the rest of this entry »

Should Energy Customers be Empowered or Protected?

March 14, 2016

(by Catherine Waddams) The Competition and Markets Authority (CMA) has argued that competition is the way to empower most energy customers, but that prepayment users need additional protection. The compromise highlights the tension between competition and protection, because although competition is often the best way to ensure the lowest average prices and highest service quality for consumers on average, it is a process which carries no guarantees about the outcomes, nor about which particular customers and providers may win and lose from the process. Read the rest of this entry »

The CMA’s Energy Market Provisional Remedies: Right Direction but Inadequate, and Missing an Important Trick

March 11, 2016

(By Dr David Deller) Yesterday the CMA published its widely anticipated provisional remedies to its long-running energy market investigation. Overall there is a significant gap between the size of detriment claimed by the CMA and the scale of the provisional remedies proposed by the CMA. It is this inconsistency which is at the heart of a dissenting view regarding the provisional decision expressed by one of the decision makers.[1] Beyond highlighting this inconsistency, the purpose of this blog is twofold: to highlight the beneficial remedies; and to raise outstanding questions that the CMA should address in its final decision and report. While the proposed remedies have limited downside risks, they are also unlikely to reset the market for the majority of consumers. A lot hangs on the (probably questionable) assumption that smart meters will solve the competition questions. Read the rest of this entry »

Is an in-depth energy market inquiry worth it?

March 27, 2014

(by Catherine Waddams) The decision to refer the energy market to the new Competition and Markets Authority (CMA) will be welcomed by many but will also have costs. On the positive side, the opportunity for a thorough review of the market enables analysis without immediate political pressure, either directly on the market or on the regulator. It is important to restore public confidence in the market, either by giving it a clean bill of health, or identifying any problems and remedying them. Read the rest of this entry »