In the latest in our series analysing the responses of key players to the CMA investigation into the UK energy market we focus on OVO Energy the vocal new entrant supplier run by Stephen Fitzpatrick.
In their submission Ovo Energy have taken the unusual step of focusing on only one of the 4 key ‘theories of harm’ saying:
“Whilst we consider other ‘Theories of Harm’ included in the ‘Statement of Issues’ worthy of scrutiny, we do not believe they have led to such serious distortions of competition contrary to the interest of consumers as those upon which we have focused here”.
Rather than taking a holistic view of the probe and the CMA’s Statement of Issues, Ovo are at pains to underline the apparent unfairness of the “incumbent” Big 6 energy suppliers being able to allegedly focus one set of pricing on ‘switchers’ and another, more profitable set of pricing on disengaged non-switching customers inherited under market deregulation.
Ovo Energy said:
“Our experience indicates that the continued dominance of the incumbent suppliers, which each retain a large base of customers who have not changed energy supplier since the privatization process began in 1989, is a significant barrier to competition.
“We think it is imperative that the CMA inquiry examines the effect of incumbency and its continued impact on the market as a key priority”.
Ovo’s prime concern therefore comes across as the ‘unfair’ advantage that ‘incumbency’ gives to the Big 6 energy suppliers enabling them to ‘subsidise’ their portfolios with “short term introductory tariffs to regular switchers” and which in the view of Ovo distorts the market through such “protective tariffs” that are “specifically designed to boost market share …. at a particular time”.
To supplement their view, Ovo also point to the unintended consequences of the Non-Discrimination Clause (NDC ) that has led prices to rise to a higher level from a policy intended to remove price discrimination.
In a final point Ovo also warn against a culture of over regulation, no doubt speaking from their fresh experience of their recent run-ins with Ofgem over innovative products bizarrely deemed unfair by the regulator.
On balance then, of all the supplier responses reviewed so far Ovo Energy’s is the least convincing.
Ovo appear to have taken a very self-centric view of the market, and in doing so would seem to have weakened their arguments.
The very fabric of the opening of competition and large customer bases is deemed a larger problem than the vertically integrated nature of the companies.
This strikes us as odd, not untrue, but odd.
One thing that will not happen as a conclusion from the CMA is the Big 6 energy suppliers being split into smaller supply businesses. We, however, fully expect that one likely outcome is that vertically integrated businesses may be split into different functional arms.
It is therefore difficult to see what Ovo hope to achieve by their response.
More concern exists in their failure to tackle the problems of the wholesale electricity market and the issues smaller suppliers face. Given Ovo’s strategy in this area, a sharing of wisdom would have been preferable to silence.
Overall one cannot read Ovo’s response without feeling that the self-centric nature does a dis-service to a business that could have been held up as a beacon for innovation and success in the market despite and indeed because of their current arrangements.
Ovo, unusually for them, have really missed a trick on this one, most disappointing.
For OVO Energy I can only imagine that the dominance of the Big 6 and the consumer behaviours grown up from pre-competition time of habitual acceptance of “price taking” is a real and existential problem. I see their submission as a positive contribution reflecting life as a smaller supplier. CMA would do well to investigate.
Yes, we agree the value in the small supplier perspective is essential to a rounded CMA investigation. However, it is what is missing from Ovo’s submission that marks it down for us as a completely positive contribution. We would like to have seen more focus on the realities of the wholesale market for smaller suppliers and the influence that has on their very existence, as well as the focus on the ‘end game’ of customer experience.
Yes, tackling the wholesale market and its accessibility is absolutely essential to breaking open the market again and making it work for the small supplier, new entrants and the consumer. Recalling the “Release Gas” scheme of the 1990s, that component was vital to making the wholesale market gain liquidity and remove some risk to the small supplier. I don’t have any inside track on Ovo but maybe a lot of resources are needed for the fullest response; this at least hits one of the big issues.