Comments on the CMA Energy Market Investigation – Provisional Findings and Possible Remedies
Catherine Mitchell, Bridget Woodman, Matthew Lockwood, Jessica Britton, Caroline Kuzemko and Richard Hoggett, Energy Policy Group (EPG), University of Exeter
1) The Energy Policy Group (EPG) is pleased to make comment on the Provisional Findings Report (PF) and on the Possible Remedies report (PR). In the past, we have input a submission to the CMA’s Statement of Issues. We then gave oral evidence, the summary of which is now up on the CMA’s website. We then commented on the Updated Issues We have also written various blogs (e.g. here and here).
2) The Terms of Reference to the CMA Investigation sets out the problem the CMA is addressing: that ‘the gas and electricity markets authority has reasonable grounds for suspecting that a feature or a combination of features of the market or markets for the supply and acquisition of energy in GB prevents, restricts or distorts competition’. And the CMA is investigating ‘whether one or more issues give rise to an adverse effect on competition in the markets for the supply or acquisition of electricity and gas in GB’ (para 2).
3) EPG continues to view the CMA Investigation as very useful. It has provided a focus for the industry spectrum to let its views be known in a transparent manner which is most welcome. However, both the EPG’s original submission and the Updated Issues report argued that the CMA’s Terms of Reference (ToR) are too narrow for the multi-dimensional concerns of shepherding an energy system towards a sustainable future whilst at the same timing ensuring security, minimising affordability issues, keeping up with technological change, and hopefully capturing some of its opportunities for GB society. Partly because of this, the EPG comments on the Updated Issues report were not entirely positive: saying that the EPG had not agreed ‘with most of what the CMA appears to have concluded so far’.
4) Again, mainly because of the CMA’s ToR, there are still a number of issues which we do not agree with in the PF and PR – and most of these are where we consider that the CMA has taken a too narrow, economic, academic and non-practical approach to an issue. However, we are pleased that in the areas where the CMA does not have a questionable calculation to base its argument on, there are PRs which we support wholeheartedly, provided they are implemented in certain ways.
5) Overall, we agree with the CMA’s unequivocal statement (page 30, para 128) that their PF has identified ‘a combination of features of the markets for the domestic retail supply of gas and electricity in GB that give rise to an adverse effect on competition (AEC) through an overarching feature of weak customer response which in turn gives suppliers a position of unilateral market power concerning their inactive customer bases’. This gives a very clear basis from which to think about future energy policy.
6) Similarly, we are pleased that the CMA (Summary PF, page 2, para 4) highlights the very fundamental tension within GB energy policy: the efforts to maintain a competitive energy system whilst at the same time achieving other goals, such as security, affordability and environmental improvement. The Remedies it puts forward (for example a new relationship between Ofgem and DECC and more transparency (discussed further in the section below on Possible Remedies) are welcome and go some way to improve the situation but cannot fundamentally remove this inherent tension.
7) That is because regulatory rules and incentives are a social construct. If one wants a sustainable energy system then one needs to construct a structure with rules and incentives to reach that goal. The problem with the current energy system is that the rules and incentives of its markets and networks are constructed, in theory, for short term cost minimisation through liberalisation, with (increasingly large) bits added on to enable other goals. It is the EPG’s view that this current system’s tensions between the competitive / economic and environmental goals are increasingly unworkable. Another energy system structure needs to be developed to enable the transformation to a sustainable energy system as cost effectively and, possibly counter-intuitively, in a more competitive manner. We have set out a first draft of our thinking on this known variously as Public Value Energy Governance (PVEG) or Decentralised Energy Governance (DEG). This is an argument for a framework which would construct a system with a different balance of Government, regulatory and technical involvement, but once constructed would be a more competitive system.
…. you can read the full submission via the CMA Website or you can download via this link EPG Submission: Provisional findings and possible remedies