Helping Suppliers meet CMA requirements in their journey to Energy 2.0

CMA provisional report of remedies for energy market

The Competitive Markets Authority (CMA) has today set out its provisional findings following its energy market investigation. A summary of the provisional findings is published at:
https://www.gov.uk/government/news/cma-sets-out-energy-market-changes

Utiligroup is committed to helping enable competitive choice, diversity and efficiency for customers through its work with growing, innovative energy suppliers and new entrants. The package of proposals set out by the CMA arrive at a time of ongoing market change with project Nexus for gas, smart metering, faster switching, half hourly settlement and competitive water all on the horizon. We commit to help all our clients achieve business efficiency and competitive market effectiveness in their changes to meet the new compliance requirements and future customer focus.

A summary of the key proposals affecting our energy Supplier customers is drawn below from the summary paper:

“At a high level, our proposed package of remedies for domestic customers comprises three strategic components:

(a) creating a framework for effective competition;
(b) helping customers to engage to exploit the benefits of competition; and
(c) protecting customers who are less able to engage to exploit the benefits of competition.

An Ofgem-controlled database which will allow rival suppliers to contact domestic and microbusiness customers who have been stuck on their supplier’s default tariff for 3 years or more with better deals. This will be subject to strict safeguards so that customers can opt out at any time and to ensure that communication meets strictly controlled criteria.

A transitional price control for the 4 million households who are on prepayment meters, who face limited competition from suppliers and whose ability to switch and find better deals is far more limited than for credit and direct debit customers.

Strengthening the ability and incentives for third party intermediaries such as price comparison websites (PCWs) to help customers find better deals by giving them access to relevant information like customer meter numbers and allowing them to negotiate exclusive deals with suppliers. This will be accompanied by a requirement for PCWs to be transparent about how they cover the market and the information on display.

Removing the 4 tariff rule which limits competition and innovation. This will enable suppliers and PCWs to offer tariffs designed for certain customer groups.

Removing restrictions on the ability of new suppliers to compete for prepayment customers and reduce barriers such as debt issues that make it difficult for such customers to switch.

A requirement that the approximately 700,000 households on non-Economy 7 restricted meters are allowed to switch to cheaper single-rate tariffs without requiring a meter replacement.

Helping microbusinesses through improved price transparency, tackling ‘rollover’ contracts with greater notice periods and ending termination fees which prevent switching as well as moves to prompt and engage.

Ensuring that certain measures in Ofgem’s programme to help provide domestic customers with clearer information are prioritised and ensuring that all measures concerning domestic and microbusiness customer information are ‘road-tested’ prior to introduction.

Ensuring that the contracts for difference process where the government supports investment in low carbon generation is carried out transparently so that the impact on customer bills is assessed beforehand. There should be a clear rationale for the allocation of funding to different technologies and for the exceptional circumstances when competitive auctions are not used.

Ensuring that both electricity and gas settlement processes are reformed to lower costs to consumers by enabling more accurate measurement of consumption and more efficient supply – and to enable the full benefit of smart meters to be realised.

Introducing a locational pricing system for transmission losses incurred when transporting electricity to reduce the overall cost to customers.

Improving the policy and regulatory framework to provide a clear division of responsibilities and transparency in relation to policy creation and implementation and changes to industry codes. This includes strengthening Ofgem’s independence, reporting powers and ability to drive forward changes.”

The detail is provided for domestic customer remedies from page 16.

These changes would be brought in through a combination of CMA Orders and recommendations to Ofgem and government with the final report due on 25th June 2016.  There are many other aspects of the report behind the headline measures in areas such as the wholesale market and its effectiveness. We will be reviewing the report in detail and will be able to engage on the areas of its focus for our customers in the coming days.

Findings by the CMA are based on analysis up to Q2 2015 and since then we are delighted to have supported the continued growth of the independent supplier sector and its further expansion. Your business is making a massive contribution to the competitive future of UK energy and service provision for customers so we applaud your continued hard work. Our core strategic focus is to enable your success today and in future and we stand with you in delivering these changes.

The changes interrelate with the ongoing industry change programmes highlighted and measure 115 on page 29, for example, reaffirms the commitment to deliver full SMETS2 based smart metering by 2020 with focus required on preparations and obligations this places upon energy Suppliers. We are ready to engage with you on this and offer a managed glidepath approach to your readiness of the new central arrangements and its subsequent operations using our uSmart software suite and managed service.

Last week the National Infrastructure Commission published its Smart Power document setting out a longer term roadmap combining interconnection, storage and demand flexibility introducing new areas of value and opportunity for energy Suppliers in a the direction of a more dynamic, integrated digital market. This document is available at:
https://www.gov.uk/government/publications/smart-power-a-national-infrastructure-commission-report

Utiligroup has been engaging extensively across the industry to identify the new roadmap for UK energy, heating and water. We call this new world ‘Energy 2.0’ and welcome collaboration to turn the change, opportunity, customer expectation and compliance requirement into a path of proactive evolution that both enables and further develops your continued customer focus.   Suppliers have the pivotal job of providing energy at the right price, service basis and trust whilst introducing change in the most simple way. Together we can deliver an efficient enabling approach ‘Towards Energy 2.0’. We intend to bring efficiency through the next-generation frameworks in place within our software and service platform to offer integrated online access to the market across current and future methods of communication, data exchange, partner ecosystems and data analytics that all further enable customer value creation. Our first paper in a new series considering Energy 2.0 and the enabling role of the DCC for smart metering is available at:
https://esgglobal.com/smart-dcc-solutions/

We welcome starting to explore the journey of change for your business in continuing to deliver and grow customer benefits. Please contact us via Mark Coyle, Associate Director of Strategy at mark.coyle@utiligroup.com to arrange an early conversation with our market strategy team.