Oral evidence: Competition and Markets Authority’s Proposals, HC 315
Oral evidence, 5 July 2016.
Witness
Professor Martin Cave, Panel Member, Energy Market Investigation, CMA, gave evidence.
Chair
As is normal, can I ask you to introduce yourself and your organisation for the record, please?
Professor Cave
Yes, my name is Martin Cave and I am an inquiry chair and member of the CMA panel, and also a group member for the energy inquiry.
Chair
Thank you very much, and thanks for coming in. It is much appreciated. You are billed as a dissenting view. I think we have you for about 15 minutes. Can you explain what your disagreement was with the panel and why it came about, please?
Professor Cave
Yes. First of all, I should emphasise that my dissent is very limited. It does not relate to the analysis in the report, nor does it relate to most of the remedies, but it relates to a significant aspect of the remedies, which is how to deal with problems arising in the domestic energy market. As you may know, the statute makes a provision for dissent to be recorded and the reason for the dissent to be recorded, and I decided it was appropriate in this case for me to use that arrangement. In essence, my dissent is based upon three considerations. The first one is the very large scale of the detriment that we discovered in the household energy market. I don’t want to engage in hyperbole, but £2 billion in 2015 is a very considerable sum of money to pay for an essential service by just about every household in the country. The only other market investigation that I was involved in at the CMA was into the cement industry and the detriment that was found was £40 million on an annual basis. You can see there is quite a big difference between those. I think the scale of it, in my view, makes it important to consider not only how well the remedies will work but also how quickly they will work. I generally support the remedies applicable to the market I am concerned with in the report. They are well crafted and quite original, but in the nature of things it is difficult to forecast how well and how soon they will work. Many of them are novel. In many cases they are directed to encouraging engagement in the market and we know that encouraging household engagement in this market is quite difficult. It is an intractable problem. Over the past three years or so quite a lot of effort has been thrown at it. There have been changes to the bills to encourage people to look around, lots of instructions in newspapers on how to switch and emphasis upon how much money you will make from switching, and even a television advertising campaign by DECC encouraging people to switch, but nonetheless those measures have generated only a trickle of reduction in the proportion of customers of the six large energy firms who are on a standard grade tariff. Clearly new measures can be devised and that is what has happened in this and I think they are interesting and challenging, but it is quite hard to make a projection of how far and how soon they will work. Indeed, I don’t think you will find in the report any projection of how they will work. That is a matter of concern for me. That led me to consider whether it might be appropriate as an interim measure to introduce a more direct regulatory way of dealing with the excessive prices, particularly for a standard variable tariff. The guidelines for market investigation for CMA do indicate that it may be appropriate in some instances to adopt long-term measures that will get to the root of the problem but to combine them in the interim with short-term measures that take immediate effect, even if they are only dealing with the symptoms; in this case very high prices. For that reason I have favoured a remedy, which was floated in association with the publication of the provisional findings in July of last year, that we should have a wider cap that would basically capture all of the customers who are on the standard variable tariff.
Chair
What form would that wider cap take?
Professor Cave
It would basically be a limit that would be set and reset at regular intervals indicating the maximum price that could be charged for customers in the energy market. Sorry, can I conclude the final aspect of my dissent, because I think that is quite important as well? One of the issues that has already been discussed in this room this morning is the extent to which imposing such a cap would discourage the development of competition. That is obviously an important issue. If your two types of remedies are in opposition to one another then you risk losing the opportunity to increase engagement and to put the market into a more competitive posture. So that is clearly important. In my opinion, the design, duration and height of the price cap should take that into account. However, in my observation of the process of introducing competition in retail markets in other countries and other sectors I have formed the view that it is in fact quite possible to combine an appropriately designed cap with the continuing increase in engagement on the part of households. For example, in the telecoms sector in the UK in the early part of the century something like that happened. There was a price cap imposed upon BT and underneath that price cap other people came into the market and sold competing products and then in 2006 the price cap was finally withdrawn. A similar thing may be taking place in the water industry. In the energy markets in GB in the beginning of the last decade a similar process went on that led to the removal of the safeguard price cut in 2003, simply because enough competition had developed for Ofgem to think it was safe to do so. We have seen a similar thing taking place in other jurisdictions. For example, in three Australian states a safeguard cap has been introduced in energy markets and it has been withdrawn in those states. Despite the cap, there has been enough development of competition for the regulator to consider it safe to withdraw it because the market has become effectively competitive. It has moved from the state of potentially competitive to effectively competitive. When it is potentially competitive, in my opinion, it is quite feasible to have a cap to protect customers against the worst excesses.
Chair
You obviously feel the market is not competitive at the moment at all?
Professor Cave
Well, it consists of a competitive segment and a non-competitive segment, but unfortunately the majority of people are in the non-competitive segment and the CMA data suggests that they are overpaying, if I might put it that way, £300 a year.
Chair
In the competitive sector, you have to be active in the market as opposed to being passive in the market.
Professor Cave
That is right. As I said, persuading people to move from an inactive state to an engaged state is extremely difficult. It seems to be inevitable that it is going to take quite a long time. With the cash registers ringing at the rate at which they are, it seems to me that the continuation of that detriment for a longer period is going to be strongly detrimental to everybody. There is a particular problem that among the customers paying higher bills there is a slightly disproportionate representation of people who are poorer and older, living in social housing and things of that kind.
Chair
For clarity, your proposals would not affect those who are choosing by default in the competitive sector?
Professor Cave
It wouldn’t affect them at all. Competition would still take place with that quite substantial number of people. In other jurisdictions, in my opinion, the evidence suggests that provided there is a sufficient gap between the competitive price and the regulated price, there will still be this kind of progressive peeling off. There can be, if the cap is appropriately designed, this competitive peeling off of households as they switch, as they become more trusting or as circumstances change or as the CMA remedies take effect; for example, the database remedy and smart meters. Admittedly there is a certain degree of uncertainty about how far and how fast they will take effect but that process, in my opinion, will continue. I am not saying it will continue in precisely the same way but throughout the period in which the cap is in operation, and possibly afterwards to the extent that the companies are unable to raise their prices immediately to their former exalted levels, there will be a predictable and reliable reduction in the detriment. For example, the CMA has calculated that the prepay meter price cap will produce a reduction in the detriment of the order of £300 million. In a sense you know what it is going to be because once you have set the cap you know what the price is in advance and so you can see a difference.
Chair
Given all you have said, why do you think your other colleagues in the CMA did not accept your argument?
Professor Cave
I think it is largely because they have a different interpretation of the danger to the competition remedies that would result from imposing the regulated price. I think that in essence is the nature of the difference in judgment between us. I am certainly not claiming to have any infallibility in this respect but it seems to me that there is a pretty credible case for saying that the two effects can operate simultaneously. Not in identical ways in which they would operate if they were applied independently but the power of the combination is precisely that you can achieve in the interim some kind of predictable reduction in the detriment. If, as I suggest in my brief sketch of what a price cap might look like, that cap is taken off after two years unless some other body than the CMA comes in and reimposes it, you would move into a world in which, as the CMA’s remedies came into operation—and to the extent that they work when they come into operation—you would achieve a transition, assuming that to be possible, to the effectively competitive market that I think we all aspire to.
Chair
Thank you. Time is pushing us but I just want to follow up. You mention a consumer detriment of £2 billion—overcharging people £2 billion—and the CMA had £1.7 billion in their interim and £1.4 billion at the end of their report. Do you accept this revision?
Professor Cave
I was citing the figure in 2015. You may be aware that there has been a general increase in the detriment over the period from 2012 to 2015. In my opinion—and this is acknowledged in the report, I think—it is probably more important to attach greater weight to the later years when the gap between the competitive price and the standard variable tariff has increased quite markedly. I am using one year’s figures, the latest year’s figures, and the £1.4 billion is based upon an average of four years.
Chair
Thank you for that. It is very useful. Finally, is there anything else that you didn’t agree with or have concerns about in the rest of the package of measures and remedies that the CMA proposed?
Professor Cave
No. I am quite content with the remedies. If I may say so, I think it is an excellent report and the analysis is first class, and the other remedies have been very carefully thought out and well devised.
Chair
Professor Cave, thank you very much for your time and for coming in. It is much appreciated and it is useful for our remedy session. Thank you. Examination of Witnesses
Witnesses
Roger Witcomb, Chair, Energy Market Investigation, CMA, Simeon Thornton, Project Director, CMA, and Susannah Meeke, Director, Remedies, Business and Financial Analysis, CMA, gave evidence.
Chair
Thank you, panel. Can I ask the usual formalities, that you introduce yourself and your organisation or position for the record, please?
Simeon Thornton
My name is Simeon Thornton. I am one of the inquiry directors for the CMA inquiry.
Roger Witcomb
I am Roger Witcomb. I am the Chair of the Energy Market Investigation at the CMA.
Susannah Meeke
I am Susannah Meeke. I am a Director of Remedies at the CMA.
Chair
Thank you all very much and thank you for coming to give evidence today. Congratulations on completing the Energy Market Investigation. Before we examine specific remedies and impacts on consumers, we have a duty to scrutinise the process of your investigation. This inquiry began in 2014. Did you expect it to take two years and, if not, why did it take two years?
Roger Witcomb
First of all, thank you very much for inviting us to give evidence. We really appreciate this. We do believe that this is a landmark in the development of the energy market going forward and we are absolutely committed to making the energy market work well for consumers. This is a huge inquiry. It is the biggest inquiry that the CMA or its predecessor organisations has ever done. Did we think it would take two years at the beginning? Well, no. We did our level best to do it in 18 months, as is the initial statutory requirement. As time went on and more evidence came in and there was the need to do more analysis and to cover more issues, it became apparent that we would not be able to do justice to this within an 18-month period. We have an absolute statutory deadline of 24 months and we ran right up to it, but I think it is a reflection of the scale and depth with which we went into the inquiry.
Simeon Thornton
Could I add one thing to that? We have had two key objectives here: one is to persuade, to inform the public debate; the other one is to identify problems and address them with the powers we have. It is important to understand, in considering the length of the report and the length of time we took, that we have order-making powers that are very stringent and are subject to quite stringent legal processes and appeal processes. We have had to do several publications of the report, consultations, and that has inevitably added to the timescale. It is on the back of those panels that we are introducing some of the more stringent remedies such as a prepayment price cap. In understanding how long it takes and how many iterations of the report we have produced, I think we need to understand that very important aspect of the investigation.
Chair
Thank you. Some would argue that the report was maybe lengthy and some others will argue that it was costly and particularly costly for those in the industry. A figure of £80 million has been quoted by a newspaper as a total cost of the investigation. Does that seem accurate?
Roger Witcomb
I really can’t say what the cost is to the other companies. Our own costs were around £5 million.
Chair
Were you aware of the investigation costs to businesses, in particular small suppliers, and did you take any steps to reduce and mitigate these costs?
Roger Witcomb
We are certainly very mindful of the costs that these investigations impose on businesses. Small businesses have not really been very much in the firing line here. We have seen them as allies encouraging us and wanting to help us. We don’t believe that our costs are disproportionate and we believe that the outcome is in the interests of consumers but also in the interests of the small businesses, the challenger suppliers and, indeed, the micro businesses who are part of our investigation.
Chair
Could I gently say perhaps on the same issue, could you have been more mindful of the costs to those they are investigating as well?
Roger Witcomb
It is absolutely essential that we get this right. A lot of what we have seen in the past has been the consequence of well intentioned but possibly not fully thought through remedies to immediate problems. Our only aim has been to get it right and to do what is best for consumers going forward. That is necessarily intensive of cost and resource and thought. We believe that what we have done has been very efficient. It has been an efficiently run project and the results entirely justify the effort spent on it, both by us and by others.
Chair
Thank you for your perspective there. Do you have any reflections on the main achievements of the investigation? Was there anything you hoped to address but you were unable to address, given that you were pushed for time? I am going to use the other hand and say perhaps you didn’t take long enough. Harry Truman: the American President, always had two hands; on one hand was one argument, on the other hand was the other argument. You made achievements and is there anything else you hoped to address?
Roger Witcomb
You will notice I am keeping my hands very firmly under control. I think a lot of the comment has been on the more eye-catching remedies, such as the price cap and the database remedy. Perhaps I could quickly go through some of the others, because I think there are some very important things that we have done here that will set up the market for the next century. It was mentioned earlier today, but what we have done is put to bed some notions out there, particularly about competition in the wholesale market and vertical integration and indeed about possible co-ordination between the Big Six. We have looked at those very carefully and come to the very clear conclusion that these are not a problem and should not concern anybody going forward. I think that is a huge contribution to the public debate. Through the analysis we have done of who is switching, who is not, why they are switching, why they are not switching, what sorts of demographic characteristics they have, we have added hugely to the sum of knowledge and anything that is done in this market going forward will rely very heavily on what we have done. That is before you get to the 36 remedies that we came up with, some of which are eye-catching, some of which, although very important, are much less eye-catching. Code governance, for example, is not a topic that sets the pulses racing in most quarters but it is very important. There 10,000 pages of codes, I think.
Simeon Thornton
And counting.
Roger Witcomb
And counting, in the gas and electricity markets. The vast majority of those are technical but a significant proportion have a lot of commercial significance. The current set-up is that the governance of this is by the industry. For the reasons that you have just mentioned, which is resources, that effectively means the Big Six. A lot of desirable, in fact essential, reforms to the code process that will have a huge impact on the market in the future are in the hands of parties whose interests are not—and I put this delicately—necessarily perfectly aligned with those of consumers as a whole.
Chair
Delicately put.
Roger Witcomb
I could put it less delicately but probably not. What we are doing is putting Ofgem in charge of this process. They are the appropriate people to be in charge of this process and that is going to make a huge difference. There are some stories out there of code reforms, Project Nexus being the obvious one, which is a highly desirable reform to encourage competition in the gas market. It has been going for—how long has it been going for?
Simeon Thornton
Eight years.
Roger Witcomb
There was a firm commitment to come to an end in October. I understand that commitment is now rather less firm. This is an important thing. It has taken eight years because it has become stuck in the morass of governance relationships. There are how many different code panels?
Simeon Thornton
There are 11 codes now, six code administrators and, as Roger said, there are 10,000 pages of codes. It is very dense and very complicated, but some of the more fundamental issues that we have identified in the market arise from those complex rules, and because it tends to be the incumbent operators who govern the change process, that can have harmful effects for competition.
Chair
Not all 10,000 codes.
Roger Witcomb
No, I promise just one. Moving to smart meters, a much more responsive market requires something that is technically known as half-hourly settlement. I won’t go into the details of the settlement process, because I do not think you would believe it if I told you exactly what goes on at the moment, but with smart meters the opportunity is there to sweep away at least 300 of those 10,000 pages, and probably a lot more, by putting in half-hourly settlement. There are currently no firm plans to do that. We have been to other countries who have been this way and they say, “Yes, of course you need half-hourly settlement. What’s the problem?”. The answer is that the governance is the problem, so we are sorting that. Sorry, that is a long way round of explaining where there are some very important changes. I think overriding all this is the fact that we are strengthening the role of Ofgem hugely, putting it in the centre of this market and clarifying the way it interacts with the industry, and indeed with DECC and customers, and we can look at the various remedies in that context.
Chair
Can I now maybe turn to a cynical question on the timing of the report? Perhaps it is not cynical, but perhaps it is. It was published the day after the EU referendum. Perhaps the non-cynical part of me would say you didn’t expect the Brexit, you thought that it was just quiet and not much news, but some people could have thought it was an attempt to evade scrutiny. Why was that date chosen?
Roger Witcomb
Can I first say that we were disappointed to have to publish on that day? We think it is a very good and important report and we fully recognised that it would not get quite the day one attention that we would normally expect. Indeed, it turned out that way.
Chair
Or day 10 attention, given the current situation.
Roger Witcomb
We are working at it, but the serious point is that this is a report for the long term so I am not really worried about the precise date or the timing. The reason is that we had a statutory deadline of 25 June. We were obliged to publish before 25 June. We took the view that it would be inappropriate and possibly even more controversial to publish the report in the pre-referendum period, and so we found ourselves in the position where it couldn’t be before 24 June and it couldn’t be after 24 June, which made the decision quite easy.
Chair
Does the vote to leave the EU affect any of your recommendations in the report? I know it may be difficult because you are a hostage to fortune, but is there anything obvious that you are aware of at the moment?
Roger Witcomb
The straight answer is nothing obvious. It depends on the terms of exit and what stays and what doesn’t. Clearly the energy industry at the moment is very much part of the EU energy regulations and those are incorporated in the UK legislation, so it just depends what happens to UK legislation going forward.
Chair
Given that we do not know whether it will be an EEA or another third country agreement post our exit after a seven-year negotiation, I can see that there is quite a hostage to fortune in the area.
Glyn Davies
Can I ask you about vertical integration and the dismissal of the harm that vertical integration might cost? When Ofgem referred in the beginning there was a bit of an assumption that vertical integration was harmful and that you might have been expecting to have a negative response towards vertical integration. Just explain to us why exactly that position changed. I think it is fair to say it did change from the beginning point. What is your thinking behind the change and do you see whether vertical integration has any threats, any problems, foreclosure or the sort of things that we read about two years ago? Do you see any of those threats still existing?
Roger Witcomb
I should first of all say that when we went into this inquiry I shared those concerns, that there were issues around vertical integration and in particular about the liquidity of the wholesale market. The critical question in vertical integration is how well the wholesale market is working. Our conclusions, after really exhaustive analysis, were that independent generators or gas suppliers could sell into the wholesale market on exactly the same terms as people who were vertically integrated and that independent suppliers could buy in the wholesale market on exactly the same terms, that there was very little scope for foreclosure and that, therefore, there was no problem. At least one of the companies that started the investigation vertically integrated has announced the intention to deintegrate since then, which suggests that they do not see a lot of value in vertical integration and certainly we are very clear that we do not see any damage to competition and to consumers arising from vertical integration. There are possibly some internal advantages to companies to be vertically integrated, but that does not translate into damage to consumers.
Glyn Davies
You have not made any reference to collusion or that collusion is improper.
Roger Witcomb
Collusion is illegal.
Glyn Davies
There is no reference to it. Are you absolutely confident that you can say there is no collusion in the industry?
Roger Witcomb
On the basis of the evidence we saw no evidence of any co-ordination, let alone collusion. There were concerns about the timing of announcements but as always in these things, prices moving together can be a symptom either of a lack of competition or a lot of competition. The explanations given by the companies to the way that the price announcements were made—and that is the main basis of collusion—in our view were entirely understandable.
Glyn Davies
Is there a contradiction in terms of your attitude towards vertical integration, which is essentially allowing the market to operate and at the same time making recommendations about controls in the retail market? Is there a contradiction between those two attitudes in your report?
Roger Witcomb
I don’t think so. I think vertical integration is an issue about wholesale markets, whereas what happens downstream of the wholesale markets is an entirely different matter. As you will see from our report, we have discovered a very large number of issues in the retail market going forward but that does not feed back into the wholesale market.
Simeon Thornton
I think the key thing to note is that those problems would exist whether all of the Big Six were vertically integrated or none of them. They are problems relating to the relationship between the customer and the supplier, not between the wholesale and the retail arms of a particular company. As Roger says, at least one of the Big Six has substantially vertically deintegrated since the beginning of the investigation and another one has announced plans to do so, so we do not think it is a major issue.
Chair
Thank you. James Heappey, you have been uncharacteristically quiet this morning. I do worry for the panel.
James Heappey
Thank you, Chair. We are going to move on to look at vulnerable consumers in the transitional price cap. Why is it necessary to have a transitional price cap for prepayment customers and what did you hope it would accomplish?
Roger Witcomb
I think the first thing to say is that the prepayment market is very different from the credit meter market. In the standard credit meter market, we have a lot of companies—I was surprised to hear it was 46—offering very good deals across a wide range of potential customers. In the prepayment market there is not nearly so much competition. The deals available to prepayment customers are not nearly so good. There are also technical issues around competition in the prepayment market and I am going to go back into the undergrowth of the system, I am afraid, because I have to do that. The system by which tariffs get translated into the way your meter records electricity and the way in which it records how much you have spent was a system that was designed pre-competition. It is a very clunky system and specifically it does not allow there to be more than a limited number of gas tariffs out there, so it is very difficult for suppliers who want to compete in this market to get access to it and to offer deals. Also worse—and again this is a bit anecdotal—the way in which those tariff slots, the technical way by which you can put a new tariff in the market, all belong to the Big Six and the way in which they are distributed is completely unregulated at the moment. They basically do what they like. It is an indication of how complicated things get when you go right down into the weeds. That is something that we can do something about, and we are doing something about. That is one of our remedies, but it does explain why the competition in the prepayment sector is nothing like as intense on the supplier side. The good side is that when smart meters come in all those barriers will go away and it will be just as easy to compete in this market as it is in the credit market. Indeed, you could say that smart meters might open the way to prepayment being the natural way forward. Just as we buy almost everything else on a prepayment basis, you might well find that energy goes that way as well and that is one model of competition. I don’t know.
Simeon Thornton
If I can add something on the scale of the problem, we were very convinced that the situation for the prepayment customer was very different to that of other customers. We looked at the cheapest tariffs available and only last month there is a difference of between £260 and £320 for the cheapest tariffs available to prepayment customers compared to direct debit customers. They are overpaying to the extent of about 12% of their bill, so they are paying much more than other customers, and they also face far more material barriers to engagement. If you are unlucky enough to be indebted and on a prepayment meter you have very little chance of effecting a successful switch; less than 5% of attempted switches work. We are talking about a qualitatively distinct segment of the market. It is a last resort, but that is why we thought a price cut was necessary.
James Heappey
I want to dive into the role that smart meters may or may not play in making that measure irrelevant. We have heard repeated concerns on this Committee that smart meter rollout isn’t on target and that the target now is to make sure that it is being offered to every home by 2020. The Minister declined to make any sort of commitment over what would represent a good level of uptake. How concerned are you about the smart meter rollout? If it does fail to reach an appropriate level, what do you think should be done to make sure that those on prepayment continue to be supported?
Roger Witcomb
If I can make a general comment, we think smart meters are a very important new development across the whole market. Therefore, we are very keen, not surprisingly, that the programme for rolling them out is kept and that appropriate incentives, sticks or carrots, are offered to the suppliers to ensure that that is met. In the context of prepayment meters, yes, it is very important. We have said that the price cap will stay in place until 2020 or until smart meters are fully in there and operational. We have reserved the right to—
James Heappey
Can you define “fully operational”? I am keen to understand, because the Minister refused absolutely to set any sort of level of uptake that she would consider to be success. What do you believe is a successful uptake of smart meters in the UK market?
Roger Witcomb
I am not going to answer that question directly because I don’t know, but one could look at it in terms of outcomes. Simeon has already referred to the disadvantage that prepayment meter customers—
James Heappey
Sorry, Mr Witcomb, I am just going to interrupt. It seems odd that you have done your review and you have considered the impact that smart meters will have on competition within the energy market. When you were making that analysis you must have had in your mind the level of uptake required for smart meters within the market to make all of this worthwhile. Were you assuming full uptake?
Roger Witcomb
I cannot remember what—
Simeon Thornton
Our expectation is that there will be full delivery of smart meters by the end of 2020.
James Heappey
Full delivery is that every premises has a smart meter?
Simeon Thornton
As defined under the current obligation, which is that every premises has a smart meter or, in the event that someone refuses a smart meter, your obligation is considered to be discharged. It is best efforts.
Chair
At the moment I think the rollout rate at January 2020 would need to be 7,000 a day and the rollout is approximately 2,000 a day, from industry insiders.
Simeon Thornton
That is the basis on which the 2020 date is set. We have said that we have concerns about the deliverability of that target, and that is why in the design of the price cap we have built in a review in 2019 to take a view on the extent of rollout. In the event that rollout is much slower than expected then a recommendation can be made to Ofgem to extend the term of the price cap. The planning basis is the Government’s targets. We do not have a basis for taking issue with that, but we have been mindful in the design of remedies that if those targets should slip we can step in and, if necessary, Ofgem can extend the term of the cap.
James Heappey
Were you concerned to hear the Minister of State refusing to set a target for uptake? She was very—shifty is probably an unfair word, but she was unwilling to—
Chair
Uneasy.
James Heappey
Uneasy, that is a much better word, Chair, thank you. She was very uneasy about saying that we would get full uptake, and I think she was even uneasy about saying full uptake less those who had positively opted out. Her view was that by 2020 the energy companies must have simply made the offer. Given the importance of this to the review that you did—and I think we as a Committee would unanimously agree with you that smart meters are a huge opportunity to unlock competition within the energy market—it must come as a concern to you that the Government’s enthusiasm for it seems to be diminishing.
Roger Witcomb
The enthusiasm, as I understand it, is unabated. The Government are still committed to getting smart meters in. I think there clearly are concerns about getting them in and, like the Secretary of State or the Minister, we too are uneasy, it is fair to say. I don’t think it will change anything we do. In the context of prepayment meters, you may recall at the time of provisional findings we floated a proposition that prepayment customers should get smart meters first. We consulted on that and were persuaded that that was not practicable, given where we were. That then led to a concern that because the competition in smart meters was so poor there would be an incentive on suppliers to put prepayment meters at the back of the queue—probably unfounded, but you can see where that concern might come from. The price cap, of course, does not apply to customers who have SMETS 2 smart meters, so we think that one of the advantages of the way we have set the price cap up is that it does incentivise suppliers to put prepayment customers on to smart meters sooner rather than later.
James Heappey
Thank you. I want to move on to two last questions from me. You will be very aware of Professor Cave’s arguments for a more widespread price cap. Why is it that you disagree with him?
Roger Witcomb
First of all, you will have heard that Professor Cave is indeed part of the group that has put all the other—
Chair
Indeed. In fairness Professor Cave was in high praise. He just said—
Roger Witcomb
The straight answer is that we do not believe a widespread price cap would be temporary. Professor Cave’s view that you could put in place a temporary wide price cap at a level that made a significant difference to customers, low enough—
Chair
So you think it needs to be longer term?
Roger Witcomb
We do not think it needs to be longer term. We think that the choice is between going flat out to make competition work now or to say it is not going to work and we need price control. That is putting it in its starkest terms. We do not think that putting in place a meaningful, widespread price cap is compatible with the move towards increasing engagement, and what limited evidence we have confirms that. The only example that we have managed to get is, interestingly enough, in Australia again where in south-east Queensland there was a price cap. Incidentally, a lot of the price caps that go on immediately after you move from a regulated environment to a competitive environment are set very high because the intention is to encourage suppliers to come in and that they are successful. In one state, in south-east Queensland, political pressure caused that price cap to be reduced significantly. The consequences of that were threefold. One is that you take away the expensive deals and all the cheap deals go away.
Chair
The assumption is that price caps are there to bring more players into the market. The other reason for price caps could be to push the price down and to drive competition in an area where there is no competition.
Roger Witcomb
Absolutely, and that is why I was making that distinction. The examples we have of temporary price caps being taken off are in the context of trying to encourage competition from suppliers and have, therefore, been set at fairly high levels in a way that would not address the detriment here.
James Heappey
In your original findings you claim that consumers were collectively overpaying by around £1.7 billion per year, but you have adjusted that figure down to £1.4 billion in the final report. Did you get your sums wrong or has the situation changed since then?
Susannah Meeke
In terms of the detriment analysis, it was not a question of getting the sums wrong. The issue was submissions that we received from parties. The particular sums you are quoting compare the prices of the two most competitive suppliers in the market with the average prices charged by the Big Six energy firms. The submissions that we received raised questions about whether the average prices charged by OVO, or Versatility as it was, were an appropriate benchmark. We did some detailed analysis into that. We looked at various exemptions that they had over the period in terms of social and environmental costs, which would have reduced their cost base, and we made some adjustments in response to that. In effect, what we did was slightly adjust up the competitive benchmark to make allowance for those cost benefits or cost advantages that they had that it would not have been fair to compare against the Big Six, which did not have those same advantages.
Chair
We have just heard from Professor Cave that the £1.4 billion figure is over four years and the figure for the last year is £2 billion, which he feels is a growing figure. Would you accept what he said on that?
Susannah Meeke
So the figure for 2015 is £2 billion? Yes, that is correct.
Chair
So £1.4 billion is an average over the last few years and in fact this gap has grown, the customer detriment is getting worse.
Susannah Meeke
The gap has certainly increased in 2015 and there is a slight upward trend in 2012 to 2014. That is correct.
Antoinette Sandbach
On sticky customers, you found that 46% of those on prepayment meters are not switching—and that may be for the reasons that Simeon explained earlier—47% of those on standard credit do not switch, and 26% on direct debits do not switch. Citizens Advice warned that, “The proposal to share information on disengaged consumers with all other suppliers through a common database on an opt-out basis is a potentially innovative but also highly controversial way of reaching disengaged consumers. Consumer trust in the sector is low, and facilitating bulk unsolicited marketing carries real risks.” Do you agree with that assessment?
Roger Witcomb
Yes, is the answer to that. That is why we have put in the safeguards that we have. The data will belong to Ofgem. It is Ofgem who will collect the data. They will oblige the Big Six mostly to supply the data. We should not underestimate the impact that will have. These are very valuable customers for the Big Six and handing over details to Ofgem is quite a bold step. It will then be up to Ofgem to work out what is the most effective way of making use of that information and allowing suppliers to access customers. It is worth highlighting that one of the main drivers of disengagement is lack of internet access. This is a very good way of getting round that particular problem. It is not ideal, some people will throw letters in the bin of course, but there are 10 million people out there who have not switched for three years. We think this is a potentially bold and extremely effective way of reaching people that you cannot reach any other way.
Antoinette Sandbach
You looked at the French example and we heard earlier that they update their records every month, and you are calling for the records to be updated only every six months.
Roger Witcomb
I think that was based on a misunderstanding. Ours too will be updated every month. In 1,400 pages it is not surprising that the occasional glitch appears.
Antoinette Sandbach
I am glad we cleared that up. You spoke earlier in your evidence about the analysis that you have done about who is switching and who is not and said that others will rely heavily on that. How broadly based was that analysis and did you try behavioural studies or polling to look at the impact of the sticky customer database?
Roger Witcomb
I am going to pass that question directly to Simeon.
Simeon Thornton
The evidence that we do have is on a survey of 7,000 customers and it is quite striking if you look at the demographics—
Roger Witcomb
Sorry to interrupt, but 7,000 is a huge survey in the context of this—the biggest survey we have ever done.
Simeon Thornton
It may seem small but it is big. We have found quite striking results. If you looked at the people who have switched supplier in the last three years, around 35% of people who had income over £36,000 had switched supplier. If you look at people on an income of below £18,000 it was 20%. There is a stark difference in income and you see the same sort of irregularities when you look at things such as living in social rented accommodation, disability and education level. The metrics that we might broadly term “vulnerability” do tend to be correlated with not switching. The second part of your question was how is this going to be tested. I think largely in response to the comments that we got at the provisional stage that was our publication in March, we have reflected on how this database might be used as a tool to test and trial in practice. Ofgem have what is a fantastic tool, an up to 10 million customer database, and it can see what sort of interventions from suppliers work in engaging customers, for example frequency of letters. There is a plausible argument that if you have 20 letters a day you will ignore them all. What about if you restrict the number of interventions, restrict the number of letters? Does that improve matters? It is about the form of communication from suppliers. It is worth emphasising the fact that these are communications through written correspondence. As Roger said, a lot of people who fall within the target category for this remedy either do not have access to the internet or don’t feel confident in using PCWs. In fact, over half of the people fall within that category, so letter is an appropriate form of correspondence for them. It is also worth reflecting on the experience of doorstep selling, and I say that with some trepidation because there is a sharp intake of breath when we talk about doorstep selling. Doorstep selling, for all its other ills, did succeed in improving switching rates to quite high levels, about 20%, but of course the big problem with doorstep selling is misselling, a lack of trust. The excellent thing about this remedy is that Ofgem can check and test the communications with customers, so if a supplier is misleading a customer Ofgem can immediately withdraw access to the database for that supplier. That is a tool and instrument that was not available in the days of doorstep selling, because Ofgem could not control who was selling what to whom.
Antoinette Sandbach
Are you saying that the database could not also be used for doorstep selling?
Simeon Thornton
We have said that, so we have clarified in the report that it is our clear expectation that it should not be used for doorstep selling. It is up to Ofgem to enforce that, but we have made that very clear precisely because of this concern. Doorstep selling is not outlawed at the moment. The six large energy firms voluntarily took the decision to withdraw from doorstep selling on the back of robust enforcement action from Ofgem and that regime is not changing, but we don’t expect this database to be used for face-to-face communications.
Antoinette Sandbach
You obviously looked at the French example in relation to ENGIE and what happened there. How successful was that scheme? You have redacted the information from your report. Was that a request from the French side and, if not, why have you redacted that?
Simeon Thornton
Yes, is the answer. In terms of redaction, unfortunately we are subject to quite stringent controls on the sort of information that we can divulge. It is a criminal offence to not comply with section 9 of the Act, so we do take it quite seriously, as you will imagine. In relation to the French example, I think the comments that the earlier panel made are entirely fair, which is it is too early to draw inferences on how well that has gone. In fact, I think we would draw stronger inferences from what has happened, what has worked and what has not worked in the UK context. As Martin and others have said, there is uncertainty about this remedy, but that is why evaluation and continual improvement is built into the design. We can see if it is working and maybe in a few years’ time, through demographic changes, more people will be using electronic communications. Maybe it will become less useful, but right at the moment it is targeting those people who most need the support.
Antoinette Sandbach
What about the abuses or potential abuses where a tariff might be withdrawn from the market just before a billing cycle in order that those offers are not there and are not communicated to customers?
Simeon Thornton
That is an abuse—potential gaming shall I call it—that arises from the current structure of the RMR that requires suppliers to say, “This is my cheapest tariff,” and lo and behold they might withdraw the tariff when they have communicated it to customers. What we have asked Ofgem to look at is an all-market tariff messaging approach, which would avoid those sorts of concerns. We haven’t been prescriptive as to the form but, for example, Ofgem could write to customers on the database saying, “Did you know these tariffs are available in the market?”, and maybe refer to the Citizens Advice Bureau website and say, “Have you considered switching?”. It does not create those perverse incentives for an individual supplier to say, “I had better stop discounting otherwise I will disengage customers.”
Roger Witcomb
As a general principle, we don’t think that trying to persuade firms to do what is not in their commercial interest is the ideal way to go forward. We would rather that they were, in economist jargon, incentive compatible because if you are being told to do something that you do not really want to do you work out quite carefully ways of—let me put it this way. Ofgem do a lot of research into where on a bill a piece of information will be where it gets most impact. There is a lot of evidence that the companies do a lot of research working out where on a bill a piece of information has least impact. As we know from our psychological studies of behavioural economics, these things are very important. Sorry, just while we are on that, the other less newsworthy remedy we are putting in place is to oblige suppliers to take part in trials. Again, the most effective way of looking at measures to engage consumers is through the use of trials, randomised control trials, whatever you like to call them. They have been hamstrung by the fact that the big players have not been prepared to play. Now they are going to have to.
Antoinette Sandbach
Right, and they can force them to play?
Roger Witcomb
We are forcing them to play.
Antoinette Sandbach
Good. Thank you very much.
Roger Witcomb
We are ordering them to play, in fact. It is an important point. Eleven of our remedies are orders. They have legal force and they have to be done. That is why it takes a long time and why we think this is important.
Dr Poulter
I would like to come on to the specific issue of price comparison sites and also the four-tariff rule that you have decided to get rid of in your review. Can you explain the rationale for that and then perhaps talk a little bit about how you envisage the principles-based approach to ensuring tariffs being comparable will work and what some of those principles may be?
Roger Witcomb
We have already spoken of one of the disadvantages, which is that it caused a certain amount of what Simeon described as “gaming” around the way in which things are presented on bills. The straight answer is that restricting people to four tariffs means that a lot of niche tariffs that customers found useful were not available anymore, and there were other restrictions. Simeon is better up with this than I.
Simeon Thornton
There are three concerns. One, as Roger says, is niche tariffs no longer existed. There is a restriction on the sorts of discounts that suppliers can offer. Those discounts can be extremely useful in attracting new customers and incentivising the suppliers to try to engage the disengaged customer. Let us all remember that 70% of the customer base of the six large energy firms are on the SVT, a very expensive tariff, so any way in which those incentives can be enhanced is a good thing. Fundamentally, our concern around RMR was that, as others have said today, even with the four-tariff rule, if you multiply that by the number of suppliers in the market you still have over 150 tariffs. You still have a complex tariff for the standard charge and a unit rate, so unless you are very industrious and have access to a spreadsheet you are going to need to use an intermediary, such as a price comparison website or some other form of intermediary, to understand those tariffs. There were downsides of the sort that I have mentioned, and we didn’t see a clear upside.
Dr Poulter
You mentioned that this allows energy companies to incentivise and bring on stream new products or offer discounts. Would it be the case that that tends to be the behaviour or actions of larger energy companies being able to offer more products, or is it your experience, for example from your research that you did coming into this report, that the smaller, new entry energy companies offer a variety of products?
Roger Witcomb
The answer is it is both. The large companies typically run two markets really. They behave like a competitor in the market for the competitive sector and then they protect their bank of customers on SVT in another market. The strategies of large companies in the competitive part of the market changes from day to day. Sometimes they are in and sometimes they are not, for reasons that are not always possible to understand. Basically, the action in the market is people trying to get new customers and ultimately to prise SVT customers away from where they are. We think they need every help to do that.
Dr Poulter
I think we are running a little bit short on time, and I have two or three more questions to get through; I do apologise for interrupting. It is not that I don’t want to hear what you have to say, because you have been very helpful.
Roger Witcomb
I could go on for ever.
Dr Poulter
On those principles that you are going to be bringing in, the principles-based approached to ensuring tariffs are easily comparable, can you tell me a little bit about what those principles are going to be and how you envisage them working and being enforced?
Simeon Thornton
The principle is simply stated, because it is a principle rather than a prescriptive set of rules, that suppliers should ensure in designing their tariffs that they are easily comparable in terms of allowing customers to assess the value for money of the different tariffs. The reason that we have suggested this principle, which enhances the fairer treatment component of RMR, is that we have found—and again I go back to the example of doorstep selling—that when there are clear principles and Ofgem enforces robustly on the back of them, supplier behaviour changes. It changes in a way that is much more positive than when you try to prescribe the activity extremely neatly and risk legitimising the sorts of behaviour that you don’t want to encourage. The principle is simple. Ofgem has stated that it is intending to move in a more principles-based direction to deal with these perfectly legitimate concerns around customer confusion and too much complexity, and we think that is a good thing on the basis of the behaviour that we have seen in the market.
Dr Poulter
There is a concern, particularly with the larger price comparison sites that dominate the market, that those sites will only advertise deals for which they are earning a commission. I think that is a legitimate concern. I can see some nodding. Do you feel that is promoting competition and benefiting the market or not?
Roger Witcomb
To put this into context, Citizens Advice runs a whole-of-market price comparison website. You really only need one of those, and that is Citizens Advice. The role of PCWs as an addition to that is to go out to persuade people to switch, to make life easier for them, to provide innovation in the market. It is not just PCWs, incidentally. There are other third-party intermediaries that can do a possibly even better job and there are people out there now who will essentially work for you to find you the cheapest deal and charge you a fee for doing so, which we think is a great innovation. The answer is that we see price comparison websites are a good thing because they compete with each other, they compete to get customers and in this context—
Chair
But you would not want them giving less information than they have at present. We had GB Energy in and there was a bit of concern. To declare an interest, I happened to switch to them a number of months ago and now it might not be on a price comparison website. Surely it would be a retrograde step to find a company that would not be on a price comparison website.
Roger Witcomb
That is up to them. I can understand why a small supplier would like to have a situation where he or she can get on to a price comparison website for nothing.
Dr Poulter
Just a slight weakness I think is that your own report, I believe, indicated in the evidence that you have collected yourselves that 70% of consumers—and we heard this from the previous panel—use price comparison websites, two of those websites, I believe. It does not necessarily follow that if those price comparison websites are offering the best deal, that competition is going to flow with that. That is from your own evidence, so I am struggling a little bit to follow the logic. I think you mentioned about the Citizens Advice comparison website but the Centre for Competition Policy has also raised concerns about Ofgem’s ability to provide that independent price comparison website you want them to. Given such a dominance in market share, price comparison sites are not going to offer the best deal. I wondered why you put so much faith in either the Citizens Advice or another independent price comparison site.
Roger Witcomb
We certainly have always thought that it was very helpful, if not essential, to have at least one site out there that offered the whole market and that is something that Citizens Advice is providing and is happy to provide going forward. We did suggest a year ago that it might be Ofgem that did it, but we were persuaded that that was not necessary. I think the important thing is to recognise what it is that the commercial ones are there to do. They are there to sell deals to customers. They will not sell many deals if they don’t offer the cheap deals. That is basically the dynamic.
Chair
Price comparison websites bill themselves as being price comparison websites. To do what it says on the tin, they would have to become price comparison websites for those who have paid to be on their website. You have mentioned it would be quite good for companies to get on there for free, but the understanding of a price comparison website is that they go round scouring the countryside. What you are saying is they are not, they are only price advertising websites, which is a big difference to what the customer understands. It would appear to me the CMA are giving cover to that change in behaviour from price comparison websites to be price advertising websites, which is a big difference. This then will lead to further consumer distrust of the whole edifice around energy.
Roger Witcomb
Two things on that, if I may. One is that we are very clear that price comparison websites will have to be transparent about what it is that they—
Chair
They would need to be renamed, in that case, because they would not be price comparisons.
Roger Witcomb
There is an argument for that. The other thing I was going to say was that no other sector has a whole-of-market requirement. What we are merely doing is putting energy back where motor insurance, home insurance and broadband deals already are. In that context one of the interesting things is—
Chair
My alarm is from the fact that you seem to be turning the clock back and that we are not going to have as good an offer from price comparison websites in the future.
Roger Witcomb
Our concern about having free riding on price comparison websites is that that will be a very unattractive market.
Chair
Who are you more bothered about, the customer or the price comparison website?
Roger Witcomb
If there are no price comparison websites the system becomes academic.
Chair
There are at present, but you want to rewind the clock and give the customer a less attractive offer on price comparison websites to become advertising websites, which would be a huge conceptual change from what the customer has with price comparison websites. I am monopolising and time is getting on.
Antoinette Sandbach
To pick up on that, the previous Committee to this one said that it is clear many consumers are bamboozled by the number of available tariffs from the whole energy industry. Ofgem gave evidence to that Select Committee, our predecessors, that 40% of those who managed to switch had switched to a worse deal. If you are looking at trust in the marketplace, does that not fundamentally undermine that trust?
Roger Witcomb
The first thing to say is that that is very old data. It is before price comparison websites. It is at the time of doorstep selling, where we know there were issues about customers choosing the right deals. To put this into context now, if you look at any of the price comparison websites out there, and you are the average Ofgem consumer, they will all tell you on the front page that the range of savings will be between £350 and £320 a year. They will all tell you that you can save a lot of money.
Chair
Weren’t you telling us there are going to be less prices compared on the website? Sorry, Antoinette.
Antoinette Sandbach
Sorry, I just wanted to follow up. You have lifted the four-tariff rule in order to give that greater flexibility on specialist deals. Mr Watson from GB Energy suggested that maybe there should be a cap on the number of deals that can be offered—let us say no more than 11 or 15 by a single company—so that you do not get multiple deals with very small incremental differences effectively there to confuse rather than enlighten the customer.
Roger Witcomb
It is the price comparison websites who do the work here. They do the comparisons. I do agree. If you go on to a price comparison website and find that the whole of the front page is from the same company with twopence difference between them, one would expect the price comparison website to do something about that.
Simeon Thornton
That is precisely the point, that they cannot do that in the current regime because they are required to list the whole of the market. Before the whole of the market requirement they could brigade all of those tariffs together and say, “These are miniscule differences so we will put that one, two, and three”. They are precluded from doing that activity that can help customer understanding because they have to demonstrate all of the tariffs. We are clearly aware of the Committee’s previous views on it, and it is a very important area. I think for us the very stark choice is not price comparison websites as they are, with a lot of free advertising, but no price comparison websites that operate in a commercial way in the future. We think that would be a shame for customers because that is a key mechanism by which engagement can be enhanced.
Dr Poulter
One of the concerns that the previous Committee raised—and I think we are raising it today—is that there has been an undermining of consumer trust in the energy market, perhaps the behaviour of the Big Six companies in particular, and that price comparison websites are a tool that a lot of consumers turn to to access what they believe to be the best energy deals, and that is how price comparison websites market themselves. The concern is, certainly from what has been said today, that there does not appear to be any tool available except having one independent site that you are advocating, which at the moment even the independents have almost no market share, to ensure that consumers are fully informed as to all the deals in the market. What you appear to be saying—as the previous panel was saying—is that price comparison websites are not really price comparison websites. What they are is in fact an extension of the commercial activities of the energy companies that can afford the commission to be advertised on those sites. Do you think that is a good reflection of the active part of the energy market and is that good for consumers?
Roger Witcomb
I think I would say that whatever the commission is, price comparison websites are a very cheap way for a new company to get itself noticed and on to the block. It is probably the most efficient way. Clearly, if you are a small—
Chair
When you say cheap, how much would it cost?
Roger Witcomb
I cannot comment, but I think Mr Watson quoted £70 to £80 for a dual fuel customer.
Simeon Thornton
It can be much less than that.
Roger Witcomb
It can be much less. That strikes us as being high.
Chair
I thought you said they were cheap.
Roger Witcomb
Compared with other ways of getting yourself known in the marketplace, these are cheap. Compared with national advertising or television advertising, these are very cheap ways.
Chair
Television advertising would cost £70 or £80 per customer?
Roger Witcomb
It depends how many customers you get. The great thing about price comparison websites is that you only pay when you get a customer, so they are a very low risk and efficient way of establishing market share, and if you are the cheapest you get right to the top of the page.
Simeon Thornton
I think I would take issue with the idea that it will only be the small companies that lose out. What we have seen is since the amendment to the code in March 2015 there has been a substantial reduction across the board in the number of tariffs that attract commission rate—about 40% from March 2015 to December 2015. That shows in quite stark terms that the business model with this requirement to offer tariffs irrespective of whether they pay for the advertising or not is not sustainable. It is not just small firms that will not pay. Why would anyone pay, Big Six or small firms, if they are not required to in order to use a PCW?
Chair
Can I tell you why? Having used a price comparison website, it is a step of greater difficulty to go to some companies, say GB Energy, than to just click through with the price comparison website. The price comparison website has the built-in advantage of a couple of clicks and it goes somewhere. For the sake of its reputation it tells everybody. Dieter Helm has accused the CMA of being captured by the Big Six. I am sitting here thinking that the CMA has not really been captured by the Big Six perhaps—I will leave that as Dieter Helm’s point—but it certainly seems to be captured by the price comparison websites. I am really surprised to find that after two years of this work that the customer and the consumer is going to be disadvantaged. Many people who might be switching may have been better off had the CMA not done anything on that particular point in the last two years.
Roger Witcomb
The whole-of-market requirement is relatively recent. Our very clear view is that if you left the whole-of-market requirement in there, commercial price comparison websites would exit the market.
Chair
But they have not done now. That is my point.
Roger Witcomb
It is early days, and there are still enough people—
Chair
This is the capture problem: if something happens they will act, but it is not happening. There is an advantage to paying because you can click through faster. If you have not paid, you have to get off the website and be proactive yourself with the information that you have and do something about that. That is a problem. I think we are going to disagree about that because of the time. Dieter Helm has his view with you over the Big Six; I have a view with you with the price comparison website.
Dr Poulter
I want to make one last point about the value for money for small energy companies. What we do know is that while all energy companies may potentially put forward a loss-leading deal, the Big Six have tended to do that as a routine part of their behaviour, and we have heard that from the previous panel. Certainly, if you are starting up an energy company—a new, smaller energy company—taking a hit on commission of £20 or £70 per customer is going to be seen as an impact upon your ability potentially to even enter the market in the first place. I do struggle to see how these price comparison websites are offering good value to the consumer but also are effectively enabling, through the sponsorship deals with the Big Six companies, an extension of their commercial arm, and they are effectively helping to stifle the emergence of new companies coming into competition. It is controversial to say that, and I wonder whether you have reflected upon that in your thoughts.
Roger Witcomb
For us the question is: is it appropriate to subsidise new entrants by offering them free access to websites in order to allow them to come in? The evidence that we have, which is that there are north of 30 new entrants in this market, suggests that that is not a serious barrier to entry at the moment.
Chair
But you are about to erect a barrier to entry. The CMA is recommending a barrier to entry because you will not be on the price comparison websites.
Roger Witcomb
We are suggesting taking away a subsidy to encourage entry. It is not just to encourage entry; it is a subsidy to all players in this market.
Chair
You want a status quo advantage. We will have to leave that where it is due to time. We will move on to another matter, to clarify the timetable of the mechanisms for implementation of the major CMA remedies. Going through the major remedies we have discussed this morning, can you tell us about the mechanisms and the time for their implementation? How long will it take to implement the CMA orders and their recommendations to the Government and their recommendations to the private sector? Will some of the remedies need Government legislation to enact them? I think that is a question for Susannah Meeke.
Susannah Meeke
Yes, certainly. If I start with the process that we have for implementing the CMA orders, we have a statutory six-month deadline—so that is effectively Christmas this year—by which we have to have consulted on and put into place our orders. Following on from that, those will come into effect at various times depending on the specific order. For example, the prepayment price cap is due to come into effect from April 2017, price transparency for microbusinesses is due to come into effect summer of 2017, and so on. That is the process for orders. In terms of the recommendations that we make, these again vary depending on the specific remedy and, as Roger has mentioned before, we have quite a few of those. Some of the recommendations we expect to come into effect from the beginning of 2017, so those will have an effect on the market then. For the customer database, for example, we expect that the first letters will be going out in early 2018. In terms of the Ofgem-led programme, we would expect the first interventions or prompts for customers from 2019. In terms of what the CMA does, we act within the next six months to put our orders into place. Where we make recommendations to others, we have set out the timetable that we hope and expect they will adhere to in those recommendations.
Roger Witcomb
Can I put in a bit of a commercial on the end of that? We have around I think my last count was 36 remedies. Of those, 11 are orders. Those are legal obligations on parties, usually the companies, to do things. The other 25 are recommendations. Quite often in reports of this type recommendations are fairly cheap because there is no particular expectation that they are based on, very much, that they will be implemented. In this case the recommendations are based on really extensive analysis. More importantly, we have discussed them with the bodies to whom we are making the recommendations, which is basically Ofgem and DECC, and I think in one case Citizens Advice. In every case both Ofgem and DECC have said that they will implement the remedies as soon as they can, which we think gives them a great deal of extra strength and is the strength of the process.
Chair
Thank you very much. I am afraid that takes us to the end of our session this morning. Thank you for coming, even if it did raise my blood pressure on price comparison websites. I certainly hope they do not take the loophole that they have been offered and do remain as price comparison websites. Thank you for your time this morning. It has definitely been informative. Doubtless, we will see each other again at some point in the future. Oral evidence: Competition and Markets Authority’s Proposals, HC 315 2