The UK Competition and Markets Authority (CMA) is currently conducting an in-depth investigation into the supply and acquisition of energy in Great Britain. It is expected to issue its final report by the end of 2015, with provisional findings due in May 2015.

On 18 February 2015, the CMA published an updated “issues statement”. This summarises the CMA’s initial thinking based on the evidence it has received and the analysis it has carried out. It updates the theories of harm outlined in its initial issues statement published in July 2014 and highlights those issues likely to represent the ongoing focus of the investigation in the period leading up to publication of the provisional findings.

The updated issues statement identifies the following theories of harm:

  • Theory of harm 1: The market rules and regulatory framework distort competition and lead to inefficiencies in wholesale electricity markets.
  • Theory of harm 2: Market power in electricity generation leads to higher prices.
  • Theory of harm 3a: Opaque prices and low liquidity in wholesale electricity markets distort competition in retail and generation.
  • Theory of harm 3b: Vertically integrated electricity companies act to harm the competitive position of non-integrated firms to the detriment of the consumer, either by increasing the costs of non-integrated energy suppliers or reducing the sales of non-integrated generating companies.
  • Theory of harm 4: Energy suppliers face weak incentives to compete on price and non-price factors in retail markets, due in particular to inactive customers, supplier behaviour and/or regulatory interventions.
  • Theory of harm 5: The broader regulatory framework, including the current system of code governance, acts as a barrier to pro-competitive innovation and change.

The CMA’s analysis in this issues statement and going forward will be of interest to any actual or potential actors in the UK energy markets as well as in similarly structured markets elsewhere. The CMA invites comments on the document.