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The CMA’s assessment of customer detriment in the UK retail energy market

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  • Littlechild, S.

Abstract

In 2016, the UK Competition and Markets Authority (CMA) found that “weak customer response” enabled incumbent UK energy retailers to set higher and discriminatory prices to residential customers. The CMA estimated the associated higher prices constituted a customer detriment in the range £1.4 bn to £2 bn per year. Although the CMA recommended against a price cap on most domestic energy tariffs, the size of the detriment and public concern about “rip-off energy tariffs” nonetheless led the Government to impose a price cap as from January 2019. This paper examines the CMA’s calculation of customer detriment and suggests that it is inconsistent with CMA Guidelines and unprecedented with respect to its nature, magnitude and policy impact. Alternative more realistic calculations suggest that any detriment would have been nearly an order of magnitude lower, so that a price cap was inappropriate. This raises a number of questions about the CMA’s approach.

Suggested Citation

  • Littlechild, S., 2020. "The CMA’s assessment of customer detriment in the UK retail energy market," Cambridge Working Papers in Economics 2051, Faculty of Economics, University of Cambridge.
    • Handle: RePEc:cam:camdae:2051
    Note: sl304
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    References listed on IDEAS

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    1. Xiaoping He & David Reiner, 2018. "Consumer Engagement in Energy Markets: The Role of Information and Knowledge," Working Papers EPRG 1835, Energy Policy Research Group, Cambridge Judge Business School, University of Cambridge.
    2. Stephen Littlechild, 2020. "The CMA’s assessment of customer detriment in the UK retail energy market," Journal of Regulatory Economics, Springer, vol. 57(3), pages 203-230, June.
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    Cited by:

    1. Stephen Littlechild, 2020. "The CMA’s assessment of customer detriment in the UK retail energy market," Journal of Regulatory Economics, Springer, vol. 57(3), pages 203-230, June.
    2. Amenta, Carlo & Aronica, Martina & Stagnaro, Carlo, 2022. "Is more competition better? Retail electricity prices and switching rates in the European Union," Utilities Policy, Elsevier, vol. 78(C).
    3. Haar, Lawrence, 2021. "The competitive disadvantages facing British assetless electricity retailers," Energy Policy, Elsevier, vol. 155(C).
    4. Stephen Littlechild, 2021. "The challenge of removing a mistaken price cap," Economic Affairs, Wiley Blackwell, vol. 41(3), pages 391-415, October.

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    More about this item

    Keywords

    retail energy markets; market power; efficient costs;
    All these keywords.

    JEL classification:

    • L94 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Electric Utilities
    • L95 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Gas Utilities; Pipelines; Water Utilities
    • L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation

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