CMA Energy Market Investigation—critique of CMA consumer detriment analysis
On 24 June 2016 the CMA published its final report, in which it concluded that, between 2012 and 2015, domestic customers paid around £1.4bn per year more than they would have done in a properly functioning competitive market. This estimate was based on a comparison of tariffs charged by the established suppliers to tariffs charged by the benchmark companies chosen by the CMA, OVO Energy and First Utility, subject to certain adjustments.
As part of our work for ScottishPower, Oxera reviewed the CMA’s analysis. The CMA had not opened its analysis to detailed scrutiny, and the final report contains only limited detail on how it was calculated. However, it is clear that adjustments for customer acquisition and overhead costs, which the CMA made for the first time in its final report, have a significant impact on the estimates of overall consumer detriment, of no less than £978m per year.
Our analysis identified a number of issues with the approach adopted by the CMA, including those related to adjustments for customer acquisition and overhead costs, implicit benchmarking of wholesale costs, and choice of benchmark companies. We found that addressing these issues would leave the range of possible consumer detriment between -£720m and +£755m.
