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CMA Findings – An alternate view

TCMA logohe trickle of initial findings from the CMA, Competitions and Markets Authority investigation into the energy market has turned into a flow this week with the headlines unsurprisingly being grabbed by the more hyperbolic mutterings.

The big one is the allegation that the CMA’s initial investigations have uncovered “significant evidence” that customers have been overcharged by energy suppliers.

That significant evidence however appears to be what any sensible individual or business would know anyway:

If you don’t engage in the energy market you will inevitably be left on a less advantageous rate than you otherwise would have been.

That surely isn’t a smoking gun. Is it?

Remain on a variable, standard rate and you may pay more than a negotiated rate. Surely that’s pretty commonplace in any market where if you don’t negotiate you won’t get the best prices.

The criticism of the suppliers was extended to the fact that they were able to extract greater revenues from those customers who failed to negotiate (note the relative profit wasn’t mentioned).

Indeed the CMA claimed that the revenues delivered to energy suppliers from their standard variable rates was found to be 12% higher for electricity and 13% higher for gas compared to their other, negotiated offerings.

Why is this a surprise, and indeed why is it, in the energy industry, unacceptable to behave in a way that is the norm in any other?

Energy suppliers, like any commercial entity, are not obligated to provide their cheapest prices to all and sundry regardless of their level of engagement in the market.

If that is wrong then this is not an issue limited to the Big 6 energy suppliers or indeed the energy market.

Rather it is a two-fold problem:

  • the capitalist system of economic management will always find a route to optimising revenues and profit, this hasn’t been invented by energy suppliers
  • Failing to engage in the energy market, indeed in any market, is guaranteed to leave an individual or business paying more than they otherwise would be

Taking the first price offered

Not engaging in the market

Failing to negotiate

Expecting markets to behave other than convention

All of these are the reasons why customers can pay too much for their energy.

Like everything in life, you get out what you put in. Engage in the energy market and your prices will fall. That is the only headline that matters.