title: "CMA Energy Market Investigation 2016" updated: 2026-04-10 tags: [cma, remedies, retail-market, prepayment, microbusiness, settlement, transmission-constraint] source: ~/knowledge/sources/cma/2016-06-energy-market-investigation-order.md

CMA Energy Market Investigation 2016

The most significant regulatory intervention in GB retail energy markets before the Tariff Cap Act 2018. A two-year CMA investigation (2014-2016) found competition was failing domestic and small business customers and imposed a package of remedies through Orders made under the Enterprise Act 2002.

What the CMA Found

The core problem

Around 70% of the Six Large Energy Firms' domestic customers (Centrica, EDF, E.ON, RWE, SSE, Scottish Power) were on standard variable tariffs. Up to 10 million of them had been on SVT with the same supplier for three years or more. Gas and electricity are homogeneous products - customers paying the same for the same thing should have been competition's most tractable problem. Instead they were not switching.

The CMA identified this as an Adverse Effect on Competition (AEC) - the Domestic Weak Customer Response AEC - caused by: low switching awareness; complex tariffs and bills; barriers to using PCWs; and actual or perceived switching hassle (erroneous transfers etc.).

Detriment

The CMA's direct comparison approach (benchmarking Six Large Energy Firm prices against the most competitive suppliers) put the annual detriment from excessive prices at approximately £1.4 billion per year on average over 2012-2015, rising to nearly £2 billion in 2015. SVT customers paid around 11% more per kWh for electricity and 15% more for gas than customers on other tariffs over 2011 to mid-2015.

Prepayment meter customers were paying around 12% above the competitive benchmark - the highest detriment of any customer group.

Other AECs

Beyond retail customer engagement, the CMA also found: - A Prepayment AEC: technical and competitive barriers specific to PPM customers, including the Debt Assignment Protocol preventing indebted customers from switching. - A Microbusiness Weak Customer Response AEC: lack of price transparency, TPI malpractice, auto-rollover traps. - A Locational Pricing for Transmission Losses AEC: uniform loss charging distorts competition between generators. Efficiency costs estimated at £130-160 million over 2017-2026. - A CfD Allocation AEC (no Order, recommendations only). - A Regulatory Governance AEC (no Order, recommendations only).

The Order as Remedy Vehicle

The CMA made its remedies through a suite of Orders under section 138 of the Enterprise Act 2002 (duty to remedy AECs). Each major remedy category got its own Order document, made in December 2016. Where Orders required changes to supplier licences, the CMA introduced new Standard Licence Conditions directly under section 15 of the Electricity Act 1989 and section 27 of the Gas Act 1986.

This is an important structural point: the CMA had direct licence condition-making power through the Orders. It did not need to ask Ofgem. This is the enforcement mechanism built into the Enterprise Act's Part 4 investigation regime.

Lasting Remedies (still live)

Transmission constraint - Generation Licence SLC 7A

Generators holding Generation Licences are subject to a price-cost conduct condition during transmission constraint periods. They must not offer into the Balancing Mechanism at prices materially above their marginal costs when a constraint is active. This is a competition protection for system operation: it prevents generators exploiting the local monopoly conditions that arise when a transmission constraint limits substitute capacity.

This condition remains in the Generation Licence and is the CMA's most direct intervention in wholesale market generator behaviour.

Locational transmission losses - Electricity Transmission Losses Order

The Electricity Transmission Losses Order (14 December 2016, operational April 2018) requires National Grid Electricity Transmission to allocate loss costs to users in a manner sensitive to each user's locational impact on losses. Transmission Loss Factors are calculated per BM Unit per Settlement Period via the BSC.

This ended 25 years of debate about locational loss pricing - a debate the CMA noted had been running since privatisation. The Order explicitly prevails over the BSC if there is a conflict on loss factor calculation.

Microbusiness protections - Microbusinesses Order (permanent)

The Microbusinesses Order has no sunset clause. It continues in force. Live obligations:

Auto-rollover reform: suppliers cannot include restrictions on when microbusiness customers can give notice to terminate, whether in the Initial Period or Roll-Over Period. Notice of up to 30 days must terminate the contract; contracts must terminate at end of Initial Period if 30 days' notice given beforehand.
No termination fees in rollover: suppliers cannot charge termination fees when a microbusiness customer terminates during the Roll-Over Period, or under out-of-contract or evergreen contracts.
Price transparency: suppliers must publish all acquisition and retention tariffs in a Prescribed Format (total estimated cost, standing charge, unit rates, other charges) on their website or on third-party comparison platforms. Out-of-contract and deemed contract rates must also be published on the website.

This is a structural competitive protection. Microbusinesses can now leave fixed-term contracts without exit penalties on rollover, and can compare prices before entering any contract.

ECOES/DES access for TPIs

The ECOES/DES Order gave price comparison websites and other third-party intermediaries access to electricity and gas supply point databases (ECOES and DES). This underpins the ability of business PCWs to offer accurate comparison and facilitated switching for both microbusinesses and domestic customers.

Half-hourly settlement (indirect)

The CMA's recommendations to DECC and Ofgem to develop mandatory half-hourly settlement (HHS) for domestic and small business customers catalysed Ofgem's mandatory HHS direction, leading to BSC modifications P272, P354, and the ongoing HHS transition. The CMA did not impose HHS via Order - but it accelerated the regulatory process significantly. HHS is the prerequisite for meaningful time-of-use tariffs in GB retail electricity.

Superseded Remedies

PPM price cap (Prepayment Charge Restriction Order)

The CMA's PPM cap ran from 1 April 2017 to 31 December 2020. It capped what suppliers could charge prepayment meter customers, structured as a Relevant Maximum Charge per region per six-month period, introduced via Electricity and Gas Supply Licence Condition 28A.

The CMA was explicit that this was an interim remedy - designed to protect PPM customers while competition improved and smart meters rolled out, not as a permanent price control.

From October 2018, the Domestic Gas and Electricity (Tariff Cap) Act 2018 introduced a broader cap on all default tariffs (including SVT and PPM) across all customers. This subsumed the CMA's PPM cap. The PPM Charge Restriction Articles ceased to have effect by their own terms on 31 December 2020.

The CMA had not recommended a blanket tariff cap as its preferred long-run remedy - it had warned such a cap risked weakening competitive incentives. Parliament made a different political judgment. The Tariff Cap Act is the successor regime.

Safeguard tariff for vulnerable customers

A companion protection to the PPM cap: Ofgem introduced a safeguard tariff for vulnerable domestic customers (mainly those on the Warm Home Discount scheme) on SVTs. Like the PPM cap, it was superseded by the Tariff Cap Act 2018.

Disengaged customer database (not operationalised)

The Database Order required suppliers to pass customer data to Ofgem for a centrally managed database of customers on SVT for three or more years, allowing rival suppliers to contact them. This was the CMA's most innovative engagement remedy - using rivals' commercial incentives to drive engagement.

It was not operationalised as planned. Data protection constraints and implementation complexity proved difficult to resolve. The remedy that might have done most to shift the market structure never took effect.

Relationship to Tariff Cap Act 2018

The Tariff Cap Act 2018 was the government's response to the CMA investigation's finding of £1.4-2 billion annual detriment. Rather than rely on the CMA's competition-based remedies to reduce prices, Parliament legislated for Ofgem to set a maximum charge for default tariffs and PPM tariffs.

The CMA's design philosophy was: fix the market so competition works, and protect customers during the transition. The government's response was: cap the prices directly. Both approaches acknowledged the same underlying failure. They differ on whether price controls are the right long-run fix.

Ofgem has operated the tariff cap under the 2018 Act since October 2018. The original Act required Ofgem to review the cap periodically and remove it once confident competition was effective. That review has not resulted in removal.

Source

Canonical: ~/knowledge/sources/cma/2016-06-energy-market-investigation-order.md Case page: https://www.gov.uk/cma-cases/energy-market-investigation Final Report: https://assets.publishing.service.gov.uk/media/5773de34e5274a0da3000113/final-report-energy-market-investigation.pdf