Energy firms charge long-term clients more, inquiry finds

An inquiry in the UK has found that energy firms tend to charge long-term clients more.

In total 95% of dual fuel customers on standard variable tariffs would have saved £158 to £234 a year if they had switched provider between 2011 and 2014 the Competition and Markets Authority (CMA) found.

Most of these are vulnerable customers.

The finding raises fresh questions over the market power of the main suppliers.

The investigation by the Competition and Markets Authority (CMA) was formally launched last June in response to an earlier referral from the energy regulator Ofgem.

Ofgem had been concerned because of widespread disquiet at the dominance of the industry by just six big operators.

Currently the big six energy firms – SSE, Scottish Power, Centrica, RWE Npower, E.On and EDF Energy – together account for about 95% of the UK’s energy supply market.

‘Sticky customers’

The update, set to be released on Wednesday, will summarise CMA’s thinking so far and point to issues likely to represent the focus of the investigation going forward.

It’s expected to highlight the plight of millions of “sticky” customers who were inherited by the big suppliers following the liberalisation of the energy market.

Millions of these customers, who are on standard variable tariffs, rarely switch.

The report will say that 40% to 50% of customers have been with a supplier for more than 10 years. For one supplier the figure is as much as 70%.

‘Unilateral market power’

But the report will warn that elements in the market seem to be consistent with the hypothesis that the six large energy firms have “unilateral market power” over these standard variable tariff customers.

It notes that the firms have consistently charged higher prices for these customers compared with those on non-standard tariffs which “provides some support to the view that these suppliers can segment the market and price discriminate”.

But while it accepts that disengagement in the market by many customers is a fact, it adds that it is not clear whether this is a deliberate ploy of the big suppliers.

It also has not formed a view on the profits of the big six suppliers, saying that “we are continuing to look at whether overall profit in energy retail has exceeded an appropriate benchmark”.

The industry regulator Ofgem is expected to face tough questions too. The CMA is to probe a new “theory of harm” that looks at the impact of regulation on competition in energy markets.

This will include scrutiny of Ofgem’s retail market review, which led to a reduction in the number of tariffs available to consumers.

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