Buy our book here.

powerlines

powerlines

We have previously blogged about the UK electricity industry and many of the discussions have revolved round investment.  However, in the past year the Competition and Markets Authority (CMA) have been investigating the energy sector as a whole because the regulators, the Office of Gas and Electricity Markets (Ofgem) felt that competition was not working as effectively as it could. One of the issues that the CMA have investigated relates to prices within the electricity supply sector.

 

We discuss pricing in chapter 14, and we analyse how pricing is not just an outcome of accounting techniques because they are many externalities that impact on the price of a product or service such as, regulation, competition, type of market in which it operates and the law. The CMA have, in their initial finding, said that UK consumers have paid around £1.2 billion pounds a year too much.  There are a number of reasons for this excessive pricing but the two main factors are that; 1) the big six suppliers have provided tariffs (prices) higher than they should, about 5% and 2) consumers have not switched tariffs and suppliers to find better prices.  So we can see here that the lack of competition has resulted in uncompetitive pricing by the suppliers but also consumers have not used consumer pressure to instigate better prices.  The strength of the customer is a very important aspect to pricing, and in this market it seems that the lack ‘shopping around’ has not helped the situation – however, why the consumers have not shopped around is the basis of another story.

 

Information from: Energy Market Investigation https://www.gov.uk/cma-cases/energy-market-investigation accessed 28/7/15