{"id":75120,"date":"2016-10-18T11:03:21","date_gmt":"2016-10-18T11:03:21","guid":{"rendered":"http:\/\/mostafa.openonline.co.uk\/?guid=eef20434948da3e82e61ff0f5ded7ef4"},"modified":"2016-10-18T11:03:21","modified_gmt":"2016-10-18T11:03:21","slug":"speech-andrea-coscelli-our-work-in-the-regulated-sectors","status":"publish","type":"post","link":"https:\/\/mostafa.openonline.co.uk\/?p=75120","title":{"rendered":"Speech: Andrea Coscelli: our work in the regulated sectors"},"content":{"rendered":"
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Introduction<\/h2>\n

As the UK\u2019s lead competition authority, the Competition and Markets Authority (CMA<\/abbr>) has a UK-wide responsibility for promoting competition across all sectors of the UK economy. The regulated sectors are a particularly important part of our work, not least because they represent a sizeable proportion of the economy as a whole. Indeed, the various services that are regulated in the UK \u2013 including basic utilities like heat, lighting and water, or financial services such as banking and insurance \u2013 are estimated to account for around 25% of UK GDP. Furthermore, they are relied upon by every household and every business in the country and are essential to people\u2019s well-being.<\/p>\n

We see a significant value in promoting competition in the regulated sectors. Traditionally, as many of these sectors involved nationalised monopolies, they were subject to direct \u2018ex ante\u2019 regulation under which the normal protections for consumers that are offered by a competitive market were achieved by a statutory regulatory regime. Over time, many of these markets have become increasingly competitive \u2013 notably as a result of the work of the sectoral regulators using direct regulation to open up markets to competition, for example, by opening up access to natural monopoly infrastructure. As a result, questions have arisen as to whether better outcomes for consumers (for example: lower prices, enhanced quality, increased efficiency and innovation) could sometimes be more effectively achieved by normal competitive processes (as in other parts of the economy that were not previously monopolies), including through the application of normal competition law to correct anti-competitive practices and market abuses.<\/p>\n

While direct regulation is likely to continue to play an important role in promoting competition in the regulated sectors, there are benefits associated with competition law, including that it can offer a less prescriptive approach for businesses, allowing them the space to develop their own business models and may provide greater scope to foster a more entrepreneurial, innovative culture that benefits consumers and helps modernise industries. The recognition of these benefits was a key driver for the reforms of the concurrency arrangements a few years ago that I will refer to later.<\/p>\n

It also explains why the CMA<\/abbr> sees great importance in undertaking work in the regulated sectors and in working with the sector regulators. That is reflected in our portfolio to date which encompasses a variety of different cases across the full range of the CMA<\/abbr>\u2019s tools.<\/p>\n

Whenever we work in regulated sectors we work in partnership with the relevant regulators. These are complex sectors with rules and regulations that were put in place for a reason when they were introduced. It is essential that in order to achieve good outcomes for consumers, we leverage the knowledge and expertise that sits with other public authorities in these areas.<\/p>\n

I\u2019d like to take this opportunity to give a flavour for the range of issues that we have tackled with those various tools, particularly looking at our work in the energy and water sectors that are the focus of this conference.<\/p>\n

Markets regime<\/h2>\n

The CMA<\/abbr>\u2019s markets powers enable us to conduct studies and investigations looking broadly across particular markets which may not be working well for consumers, taking an overview of regulatory and other economic drivers and patterns of consumer and business behaviour. We may also undertake more informal discretionary markets work, such as our recent policy project<\/a> which examined the benefits that greater competition between train operators on certain intercity routes may deliver for passengers. The striking point to note about the CMA<\/abbr>\u2019s markets work is that 2 of the most important pieces of work undertaken by the CMA<\/abbr> in its first couple of years have been in regulated sectors: energy and banking.<\/p>\n

Energy<\/h3>\n

Energy markets are vital to the economy and the well-being of households and businesses. Energy costs are a major burden on domestic customers reaching almost 10% of overall expenditure for the poorest households. At the time of referral, both gas and electricity markets were facing considerable challenges, including substantial regulatory change, political uncertainty and a notable lack of trust between operators and customers. There were public concerns about rising energy prices (1 – see footnotes at the end). There were also concerns about the levels of profitability of gas and electricity companies. An important reason for the reference was to \u2018clear the air\u2019 through an independent, authoritative market investigation.<\/p>\n

Our investigation identified several aspects of the market that are working well for customers. In the wholesale markets we found no evidence that companies are able to exploit market power. In retail energy markets, the last few years have seen a sustained period of growth for new entrant suppliers outside of the 6 large energy firms, and their combined market share now stands at around 13% in both gas and electricity.<\/p>\n

We also found that several areas of prior concern have not had a harmful effect on competition or customers. In particular, at the time of the reference there were widespread concerns about the anti-competitive effects of vertical integration, and calls for the 6 large energy firms to be broken up. In practice, we have not found that such concerns are supported by the evidence.<\/p>\n

Our investigation has, however, identified substantial problems in the energy markets, which require significant intervention. The problems we have found fall into 3 main areas:<\/p>\n