Guest Blog: npower’s Wayne Mitchell on how the energy market operates

Many ways to tell a story The energy industry is never out of the news it seems. Over the past week, I’ve been looking at all the coverage of the […]

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By Geoff Curran

Many ways to tell a story

The energy industry is never out of the news it seems. Over the past week, I’ve been looking at all the coverage of the Competition and Markets Authority (CMA) investigation. And what interesting reading it makes.

As you are probably aware, the CMA is looking into how the energy market operates and whether or not it’s working in the best way. We, like many suppliers, have welcomed this investigation as we firmly believe allegations of over charging and excess profiteering are unfair and unfounded.

It’s worth noting here that the CMA is focussing on the wholesale market, and the domestic and micro-business retail markets – and not the larger industrial and commercial customers we serve in npower Business Solutions. We know the market in which we operate is competitive and working well!

CMA collated evidence

But our colleagues across the country have been at the beck and call of numerous requests for thousands of pieces of evidence, trading records, statements and such like from CMA investigators. This certainly isn’t the time to find out your filing isn’t up to scratch, as the CMA wield significant powers and can issue huge fines for not being able to produce exactly what they’ve asked for.

After six months of working through stacks of paperwork from all the major UK energy suppliers, the CMA last week issued a statement on their ‘current thinking’ so far. They made it clear that this was in no way their final conclusions. Their initial findings are not due until May/June and their final report not until the end of this year.

Market manipulation dismissed

This ‘updated issues’ statement reviews the CMA’s initial ‘theories of harm’ – a catchy term for possible issues in the market. Although the CMA are yet to conclude anything, it’s clear they seem less concerned about a number of these theories than others. For example, it appears the CMA believes that the wholesale markets are operating well. As the FT reported in its analysis: “The power generation businesses of the big six mostly make returns at or below their owners’ cost of capital.”

However, this detail passed lots of other media by, as they instead focused pretty much entirely on three lines of the 47-page report: “Over 95% of the dual fuel customers of the Six Large Energy Firms could have saved by switching tariff and/or supplier and that the average saving available to these customers was between £158 and £234 a year”.

Average profits just 3.3%

Many papers claimed huge profits were being made at the expense of these customers. Only a few choose to include this pertinent detail: “The data suggests that average profit (EBIT) margins earned on sales to domestic customers were 3.3% over the period.”

The Daily Mail was keen to compare the energy sector with insurance, mortgage and financial service companies, where shopping around secures the best prices. The FT also reported on the CMA’s finding that “apathy is the main reason some customers pay over the odds”.

Market regulation now in the spotlight

The Times chose instead to focus on Ofgem, and the CMA’s decision to now more closely investigate “the role of regulation in market failures”. Specifically “the question of whether Ofgem’s banning of regional pricing has dampened competition on the standard variable tariffs that are levied on most households.”

It will be interesting to see what’s the CMA’s initial findings say come May. And perhaps as interesting to also see how the press – and politicians – respond. As they say, there are many ways to tell a story…

This is a sponsored article.