One thing we have learnt this week – CMA report

10668295_1133346013348006_545104614_nThe competition and markets (CMA) report has just come out today on the UK energy market.  Even in other countries then the UK there is a lesson here.  If you do privatise your energy market then do expect continuing government interference.  This also goes for railways and other things.

The CMA have taken a very long time getting to publish what is a 1000 page report (I have no intention of reading all this, even the summary is 46 pages!).  But the main conclusions are available and these are;

  • Customers are being over charged by the big six to the tune of £1.7 billion a year.  The CMA said this is because too many customers are on the most expensive default standard variable tariffs (SVTs).  The overcharging seems to be about £300 per year.  However rather than force the big six to reduce prices the CMA report proposes keeping a database of customers that have been on standard rates for three years.  These details would then be released to the energy companies and comparison websites for direct marketing.  In other words to companies who think that they are cheaper would contact us with offers.  When I heard this it was one of those heartsink moments.  Currently my household is bombarded with nuisance calls many “energy related”.  At the moment the feeling is you will have to opt out of these mailshots rather than opt in. Its also worth remembering that those in low incomes have little access to the internet and when people say its easy to switch this is what they mean.  It is online, but almost impossible otherwise- since its difficult to find out what the best deal is.
  • Those on pre-payment meters to have their payments capped until smart meters are fully rolled out.  Apparently then this problem of those least able to afford bills will magically disappear. (No I cannot work out why this should be so either).
  • Remove the four tariff rule.  Currently a supplier is limited to offering a maximum of 4 different tariffs.  Its worth remembering why this was removed.  It was done so since all the big energy companies had so many different deals that working out which was best was almost incomprehensible.  This looks like a backward step.
  • Allow those on economy 7 meters (basically these allow people to purchase cheap electricity at night- mostly to heat their houses using storage heaters) to switch to cheaper tariffs.  Motherhood and apple pie – why couldn’t they do this now?

There are also some more technical suggestions not directly related to domestic customers.

  • The CMA are critical of the contracts for difference.  For a brief explanation for these see this post.  They reckon the government are not getting the best out these and this is raising costs to consumers.  The government awarded some contracts outside the auction.  The Secretary of State for Energy responded that the government had changed the way they did this and all was well.  Who can say?
  • Locational adjustments for transmission losses.  Obviously in absence of high temperature superconductors there are resistance losses in transmission between generation and consumption.  This costs money.  The CMA want generators concerned to pay 100% of these costs rather than everyone pay 45%.  While the CMA say this cut pollution of NOx and SOx by my reckoning this will penalise renewable generation.  Few people have picked up on this – but expect a big row if my conclusions are correct.

As you can tell I’m for the most part not very impressed with this report and it looks like the CMA have caved into the big six.  To those reading this in countries without privatised energy companies take this lesson don’t privatise them it makes things more complicated – not simpler.

Neil

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