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Study reveals effects of weak competition in energy market

An investigation by the Competition and Markets Authority (CMA) into energy supplies discovered signs that competition in the supply of energy to consumers is not working well for all consumers.

The investigation also indicated that things are getting worse for customers. In particular:

  • Prices are rising faster than costs
  • Customer dissatisfaction is increasing
  • Switching rates are in decline

CMA said the recent growth of smaller suppliers however, is an encouraging development.

At January 2014, the smaller suppliers’ domestic market share was over 5% in electricity and gas, an increase of over 2 percentage points over a year, previously 4.

This shows that it is possible to enter these markets and compete with the six largest suppliers.

However, the market share of the small suppliers has remained low over the past decade.

CMA claims it is unclear that any single existing supplier will achieve sufficient scale in the near term to act as a disruptive constraint on the six largest suppliers across the market.

The investigation also found evidence of low levels of customer satisfaction.

Only 51–52% of customers said they were satisfied with their supplier, and customer complaints have increased by more than 50% since the beginning of 2011.

The survey evidence showed that in 2013, 43% of customers did not trust energy suppliers to be open and transparent in their dealings with consumers, an increase of 4 percentage points from the previous year.

CMA found that much of the rest of the market is characterised by weak competition.

Price rises by the six largest suppliers tend to be announced around the same time, and price differences between standard dual fuel tariffs are converging.

Which? executive director Richard Lloyd said: “It’s vital no stone is left unturned in establishing the truth behind our energy prices. In the meantime, Ofgem must continue its renewed, tougher approach to protecting consumers, and energy companies should make urgent changes to do more for their customers.

“We need to see radical reforms to Fix the Big Six that will inject more competition into the market and help rebuild trust by giving consumers confidence that the price they are paying is fair.”

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