U.K.’s Big Six Utilities Seen Spared From Breakup After Review

(Bloomberg) — The U.K.’s biggest energy suppliers probably
will escape a recommendation to break up companies when the
nation’s anti-trust regulator completes a review of how best to
reduce costs and spur competition.

The provisional findings of the Competition and Markets
Authority are “highly unlikely” to delve into the structure of
the country’s energy industry or the wholesale markets, said Ann
Robinson, director of consumer policy at uSwitch, a U.K. price
comparison site. Instead, the regulator will focus on how to get
consumers more engaged in managing their bills, she said.

The comments, echoed by industry officials who wished not
to speak publicly before the decision is announced on July 7,
suggest the utility industry’s basic structure probably will be
retained by Prime Minister David Cameron’s government. The
opposition Labour Party, which lost the last general election in
May, had promised to split the industry into separate retail and
power-generation businesses.

“The key issue is how to make this market work and how to
get engagement up in the market,” Robinson said. “They’re not
just talking about switching. They’re also talking about people
getting a better deal with the suppliers they’re already with —
beginning to feel they understand energy and their bills.”

The top suppliers are Centrica Plc, SSE Plc, Iberdrola SA’s
Scottish Power, RWE AG’s nPower, Electricite de France SA and
EON SE. None of the companies had a comment. EDF, which called
for the inquiry in 2011, pointed to an article its chief
executive officer wrote last week in the Daily Mail.

‘Treated Fairly’

“Customers want to know that they are being treated fairly
and they also need the industry to meet the big energy
challenges ahead,” Vincent de Rivaz said in the article that
was published on June 21. “Energy companies need to innovate
with digital technology to help customers save energy and enjoy
simple bills and prices, so they feel in control.”

The CMA confirmed the report is due on July 7 and didn’t
give more details about what it would contain. In February, the
CMA said that 95 percent of gas and electricity customers with
the so-called “Big Six” could have saved as much as 234 pounds
a year by switching tariff or supplier in the years from 2012 to
2014.

The CMA’s review was prompted by a request by Ofgem, the
energy regulator, which last year sought an investigation into
whether the utilities used their market power to increase
prices.

Political Feud

The review was meant to defuse political debate between
Cameron’s Conservative Party and the Labour opposition on how to
keep a lid on energy bills. Members of Parliament have expressed
concern that utility charges have been rising faster than
inflation. Ed Miliband, former Labour leader, pledged to freeze
prices and break up the Big Six if he won the election.

The CMA in February said it found no evidence the utilities
made excessive profits from power generation or that wholesale
market prices were above a competitive level.

The watchdog’s report next week will be provisional, with
final recommendations due by Dec. 25. It’s likely to suggest
measures to boost engagement, help vulnerable customers and
ensure regulation encourages innovation and competition.

The regulator will most likely recommend switching
suppliers to become easier and ask the higher priced standard
variable tariffs to be actively chosen by customers, said Deepa Venkateswaran, an analyst at Sanford C. Bernstein & Co.

Consumer Charges

Currently energy customers are placed in the variable
tariffs automatically unless they chooses a lower priced fixed
tariff, she said. About 70 percent to 90 percent of the
customers of the largest power suppliers are on variable
tariffs, she said in an interview in London.

“The final decision shouldn’t be stronger than its
recommendations next month,” Venkateswaran said. “It may
either soften its views along with the responses from the
companies in the next six months or keep them unchanged.”

About 10 percent of customers currently compare and switch
tariffs, Robinson said. If that were to double or triple to 30
percent it would be “transformational,” forcing suppliers to
improve their service and increase efficiencies in order to
retain customers.

The focus is expected to be on enabling “sticky”
customers to benefit from the lower prices enjoyed by more
mobile ones, said Tony Ward, head of power and utilities at
Ernst & Young LLP. If so, the remedies may have a deeper impact
on the larger energy retailers, he said.

“They should also enhance competition between suppliers,
through further increasing switching levels, as well as
encourage innovation in tariffs and services.”

To contact the reporter on this story:
Louise Downing in London at
ldowning4@bloomberg.net

To contact the editors responsible for this story:
Reed Landberg at
landberg@bloomberg.net
Amanda Jordan

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