Proving the Business Case for the Internet of Things

UK competitions body calls for faster smart meter roll out to protect consumers

Steve Rogerson
July 14, 2015
 
The UK government’s Competition & Markets Authority (CMA) has called for a speed-up on the roll out of smart meters to help stop over charging by the major electricity and gas suppliers and to help consumers shop around for better deals.
 
In its provisional findings after a year-long investigation into the energy market, it said that dual-fuel customers could save an average of £160 by switching to a cheaper deal but more than two-thirds were on the default standard variable tariff despite generally cheaper fixed-rate deals.
 
“There are millions of customers paying too much for their energy bills, but they don’t have to,” said Roger Witcomb, chairman of the energy market investigation. “Whilst competition is delivering benefits to increasing numbers of customers, mainly through the growth of smaller suppliers with cheaper fixed-price deals, the majority of us are still on more expensive default tariffs. Many customers do not shop around to see if there’s a better deal out there – let alone switch. The confusing way energy is measured and billed can make comparing deals understandably daunting.”
 
The average British household spends about £1200 on energy each year. For the poorest ten per cent of households, energy bills now account for about ten per cent of total expenditure. However, the report said that widespread consumer disengagement was impeding the proper functioning of the market. A survey of 7000 people in Great Britain found that over 34 per cent of respondents had never considered switching provider.
 
It blamed a lack of awareness of what deals were available, confusing and inaccurate bills and the real and perceived difficulties of changing suppliers. These all deter switching and the higher price levels reflect that suppliers can charge higher prices to these disengaged customers.
 
The CMA proposes that the regulatory approach to the retail market should be based on clear principles that allow the benefits of competition to be gained and promote measures, such as smart meters, that will increase engagement, while specifically targeting disengaged consumers to prompt them to shop around. Alongside this, the CMA will also be considering whether safeguards such as a transitional price cap on the most expensive tariffs are needed to protect customers until other measures have led to a more competitive market.
 
“We want to look at ways we can make customers more active,” said Witcomb. “Smart meters have the potential to transform customer understanding and engagement and their speedier introduction could have particular benefits for prepayment customers, who undoubtedly get the worst of things at present. We want to look at technical and regulatory reforms further up the chain that could also benefit competition and the customer.”
 
The CMA report also points to a lack of transparency that is hampering trust in the sector. Wider availability of financial information, and more effective communications of the impact of decisions on bills, alongside a clear and transparent demarcation of responsibilities between the Department of Energy & Climate Change (DECC) and Ofgem – and a clearer, independent role for Ofgem – would assist in making sure that policy is efficient, effective and targeted at the right areas.