The Competition and Markets Authority investigation into the UK energy market will be a long drawn out and complex affair.
In order to make sense of their objectives and to block out some of the more populist and rabble rousing commentary (from both sides), the CMA panel has established four elements that they describe as their ‘theories of harm’.
It is important to note that the key word here is ‘theory’, these are not accusations against which suppliers will be inevitably convicted, rather they are the commonly pronounced ‘perceived’ failings of the energy market and those that the CMA believe they are duty bound to investigate in order to reach their final conclusions.
Having highlighted the four, which are detailed below, the CMA now awaits the responses of industry players and affected parties to these theories and will use these as a basis to supplement and inform their ongoing investigation.
The four ‘Theories of Harm’ are:
CMA Theory of Harm 1
“Opaque prices and low levels of liquidity in wholesale electricity markets create barriers to entry in retail and generation, perverse incentives for generators and/or other inefficiencies in market functioning”
CMA Theory of Harm 2
“Vertically integrated electricity companies harm the competitive position of non-integrated firms to the detriment of customers, either by increasing the costs of non-integrated energy suppliers or reducing the sales of non-integrated generating companies”
CMA Theory of Harm 3
“Market power in generation leads to higher market prices”
CMA Theory of Harm 4
“Energy suppliers face weak incentives to compete on price and non-price factors in retail markets, due in particular to inactive customers, supplier behaviour and/or regulatory interventions”
We will be covering each of the most pertinent responses to the CMA’s theories and expect these issues to remain the dominant focus of the probe over the coming months.
For now though these seem a reasonable synopsis of the key issues that need to be reviewed, we would however expect the gas wholesale market to be added to this remit as well as a commitment that as the investigation evolves any pertinent findings or avenues that open up are pursued with the same vigour as the original “theories of harm’.