Competition in British household energy supply markets

Date: October 2014 Competition in British household energy supply markets An independent assessment Prepared by: Robert Buckley, Anna Moss Cornwall Energy

About Cornwall Energy Cornwall Energy s team of independent specialists have experience of liberalised energy markets and their regulation since their inception in Great Britain and elsewhere in the late 1980s. We provide consultancy, intelligence and training, and are a trusted and reliable partner whether you are a new entrant or a large, established player. Specific areas of our expertise include: wholesale and retail energy market competition and change; regulation and public policy within both electricity and gas markets; electricity and gas market design, governance and business processes; and market entry. 2 Millennium Plain Bethel Street Norwich NR2 1TF T +44 (0) 1603 604400 F +44 (0) 1603 568829 E info@cornwallenergy.com W www.cornwallenergy.com Disclaimer While Cornwall Energy considers the information and opinions given in this report and all other documentation are sound, all parties must rely upon their own skill and judgement when making use of it. Cornwall Energy will not assume any liability to anyone for any loss or damage arising out of the provision of this report howsoever caused. The report makes use of information gathered from a variety of sources in the public domain and from confidential research that has not been subject to independent verification. No representation or warranty is given by Cornwall Energy as to the accuracy or completeness of the information contained in this report. Cornwall Energy makes no warranties, whether express, implied, or statutory regarding or relating to the contents of this report and specifically disclaims all implied warranties, including, but not limited to, the implied warranties of merchantable quality and fitness for a particular purpose. Numbers may not add up due to rounding. 2 P a g e

Contents 1 Executive summary... 4 1.1 Main findings... 4 2 Methodology and scope... 6 2.1 Purpose... 6 2.2 Market definitions... 6 2.2.1 What is a supplier?... 6 2.2.2 Terminology about suppliers in this report... 7 2.3 Measures of consumption... 7 2.4 The Herfindahl-Hirschman Index... 9 2.5 Author s note... 9 3 Market scale... 10 3.1 The total gas and electricity markets... 10 3.2 The gas and electricity markets for households... 10 3.3 Regional distribution... 12 3.4 Suppliers entering and exiting the market... 13 4 Competition in household energy... 14 4.1 Competition in household electricity supply... 14 4.2 Competition in household gas supply... 16 4.3 Competition in household dual fuel supply... 17 4.4 Regional trends... 19 4.5 Churn rates... 19 3 P a g e

1 Introduction This paper has been prepared by Cornwall Energy at the request of Energy UK. It forms the second analysis we have carried out for Energy UK on the state of the competitive markets for supplying gas and electricity to households in Great Britain. It considers developments in the last three years by taking three-monthly snapshots from 31 January 2011 to 31 July 2014. The first paper in this series commented on findings at 31 January 2014. 1 An update sheet has subsequently been issued noting headline developments at 30 April 2014. 2 This report considers separately the markets for household electricity and gas supply and also that for dual fuel where the two energy sources are bought by consumers on a joint contract. Information is provided on a Great Britain-wide basis with comment also made on regional factors. A separate report is available through Energy UK on trends in non-domestic electricity and gas supply markets. 1.1 Main findings The primary measures of competitiveness used in this report are the numbers of competing suppliers, market shares and the Herfindahl-Hirschman Index (HHI) of market concentration 3. All show that competition has been increasing, especially in the last year. The household markets are seeing an erosion of the major suppliers 4 shares. The 7% plus shares of the household electricity (7.3%), gas (7.6%) and dual fuel (9.0%) markets held by medium sized and smaller suppliers at 31 July 2014 are the highest since competition started in the late 1990s. Other important findings from this paper include: there are now seven suppliers serving more than 1mn domestic energy accounts as First Utility has breached this threshold in the last quarter 5. This means that First Utility would have fallen into our definition of a major supplier used in this report. Since this does not align with the intent of the indicator, we have consequently increased the threshold for our definition of major suppliers to companies serving more than 3mn household energy accounts from 1mn; one major supplier saw its share of the household gas market drop below 10%. One major supplier saw its share of the household dual fuel market drop below 10%; Extra Energy joined the market providing electricity, gas and dual fuel products pushing the number of suppliers seeking domestic customers up to a new all-time high of 25. At 31 July 2014 13 companies were competing with the six major suppliers to provide households with dual fuel energy. In addition six more companies were selling either gas or electricity to households; nationally the share of households with access to gas and electricity buying dual fuel reached 85%. Gas penetration continues to be lowest in the north of Scotland and south west England; applications for gas and electricity supply licences doubled in the six months to 31 July 2014, compared to the previous half year. Although licence awards fell, this is likely a function of the increase in applications combined with time needed for Ofgem to vet licence applications; and 1 See http://www.energy-uk.org.uk/publication/finish/5-research-and-reports/1061-cornwall-energy-competition-in-britishhousehold-energy-supply-markets-report-march-2014.html 2 See http://www.energy-uk.org.uk/publication/finish/5-research-and-reports/1166-cornwall-energy-domestic-energymarket-snapshot-30-april-2014.html 3 See Section 2.4 for an explanation of this measure. 4 British Gas, EDF Energy, E.ON UK, RWE npower, SSE and Scottish Power, as defined by this report s definition of suppliers with more than 3 million customers. 5 For more information see http://www.first-utility.com/about-us/giving-back 4 P a g e

market concentration on both a Great Britain-wide and region-specific basis is declining as measured by HHIs suggesting increasing competition. In the six months to 31 July 2014, HHIs continued their long-term trend of falling and many touched new record lows. The charts below illustrate the headline findings. Active suppliers and market share of companies outside major suppliers electricity Active suppliers and market share of companies outside major suppliers gas Trends in the GB Herfindahl-Hirschman Indexes for energy markets 5 P a g e

2 Methodology and scope 2.1 Purpose This paper has been prepared by Cornwall Energy at the request of Energy UK. It is the second of what are intended to be regular six-monthly updates on selected measures of competitiveness in the markets for supplying gas and electricity to households in Great Britain. It is supported by a market snapshot in alternate quarters, the first of which was issued for 30 April 2014. A separate paper covers measures of competitiveness in the business electricity and gas markets on a sixmonthly basis. Much of the information is originally researched by Cornwall Energy and is drawn from our regular surveys of supply market competition provided for many energy suppliers since 2005. Data drawn from other sources is noted as appropriate, notably DECC s information on energy consumption and switching and Energy UK s data on the monthly number of domestic electricity switches. This report takes as its reference point the state of competition at 31 July 2014 with comparison at quarterly reference points back to 31 January 2011. Various measures of the market and competition are provided including: the total envelopes of the household electricity and gas markets including numbers of customers and the energy they consume; as the household market is predominantly a dual fuel market where customers buy gas and electricity on a combined contract analysis is provided on this basis; the number of suppliers competing to supply households, noting new entrants and exits; and information on market shares and concentration specifically including the shares of the major suppliers 6 and other companies plus trends in the Herfindahl-Hirschman Index (see Section 2.4) on both a national and a regional basis. 2.2 Market definitions Reflecting the segmentation used in our market share surveys, we have used the following criteria to segment the household markets: household electricity accounts are defined as those with settlement profiles 1 or 2; household gas accounts as defined for VAT purposes as domestic premises (and charged VAT at 5%); and dual fuel accounts are those where the suppliers report gas and electricity being sold to a householder on the same contract. This report presents information on competition covering Great Britain as a whole and also comments on trends in household competition by electricity region. There are 14 electricity regions in Great Britain as shown in Figure 2:1 overleaf. 2.2.1 What is a supplier? For the purposes of this report we define a supplier as a company that: is licensed by the Office of Gas and Electricity Markets (Ofgem) to be able sell electricity and/or gas direct to domestic consumers in Great Britain; manages its own engagement directly with the central electricity and/or gas trading arrangements or has a contract in place specifically for that purpose; and 6 British Gas, EDF Energy, E.ON UK, RWE npower, SSE (formerly known as Scottish and Southern Energy) and Scottish Power.

is or has been active during the period 31 April 2011 to 31 July 2014 billing consumers direct for their use of electricity and/or gas. There are a small number of companies supplying energy to household customers that outsource to third parties one or more of these functions. In this report these white label suppliers are treated as part of the suppliers with which they are affiliated. They include: M&S Energy and Ebico Energy as white label suppliers affiliated with SSE; and Sainsbury s Energy as a white label supplier affiliated with British Gas (Centrica) 7. Additionally some suppliers use more than one brand name when dealing in the energy market, notably: SSE uses SWALEC Energy, Southern Electric, Scottish Hydro-Electric, Atlantic Energy and SSE; and British Gas also uses Mobile Energy and Scottish Gas. 2.2.2 Terminology about suppliers in this report This report refers to three different types of suppliers based on the number of electricity and gas accounts they hold with households. The terms are: major suppliers supply more than 3mn household electricity and gas accounts. As noted above, the threshold for this definition has been increased from 1mn accounts for this report; medium suppliers supply more than 250,000 but fewer than 3mn household electricity and gas accounts; and small suppliers supply fewer than 250,000 household electricity and gas accounts. In addition other suppliers is sometimes used to refer to medium suppliers and small suppliers in combination. 2.3 Measures of consumption Data in this report are presented as follows: volume information is based on assessments of terawatthours (TWh) billed to customers in the year up to each date shown; and customer numbers information is based on those registered with the central industry settlement system and where energy is actually flowing on each reporting date and known as live on supply. For households the number of accounts held by suppliers is the preferred measure of customers. 7 Telecom Plus/Utility Warehouse was a white label energy supplier affiliated with RWE npower until December 2013, 7 P a g e

Figure 2:1: Map of electricity supply regions of Great Britain Source: Wikipedia. The numbers on the map and table below correspond. You can check your supply region as these numbers also form the first two numbers of your Supply Number. The colours on the map show ownership of the various distribution companies. Number Area Number Area 10 East England 17 North Scotland 11 East Midlands 18 South Scotland 12 London 19 South East England 13 North Wales, Merseyside and Cheshire 20 Southern England 14 West Midlands 21 South Wales 15 North East England 22 South West England 16 North West England 23 Yorkshire 8 P a g e

2.4 The Herfindahl-Hirschman Index In this report we refer to the Herfindahl-Hirschman Index (HHI). The HHI is an indicator of market concentration that measures the shares of companies in relation to the market. The index is calculated by finding the sum of the squares of the market shares of the individual companies and can be expressed as: HHI = supplier share 1^2 + supplier share 2^2 + supplier share 3^2 + supplier share 4^2... + supplier share n^2 Therefore in a market where there are five competitors with shares of 35%, 25%, 15%, 15% and 10% the HHI would be: HHI = 35^2 + 25^2 + 15^2+ 15^2 + 10^2 HHI = 1,225 + 625 + 225 + 225 + 100 HHI = 2,400 We have commented on the concentration with reference to the criteria set by the United States Department of Justice 8. It considers markets in which: the HHI is between 1,500 and 2,500 points to be moderately concentrated; and the HHI is in excess of 2,500 points to be highly concentrated. Transactions that increase the HHI by more than 200 points in highly concentrated markets are presumed likely to enhance market power under the guidelines issued by the Department of Justice and the US Federal Trade Commission. In this report we describe markets where the HHI is below 1,500 as unconcentrated. 2.5 Author s note Much of the information is drawn from confidential research undertaken by Cornwall Energy. This research has been distilled to yield measures of the extent of competition in electricity and gas supply without disclosing information that might be commercially sensitive. This report is intended to enhance understanding of the state of competition at one point in time and how it compares with recent experience. Many energy suppliers publish information on their own sales to different customer markets and comment on the implications for their own businesses. The authors welcome feedback on the content of this report and suggestions for improvement at info@cornwalllenergy.com. 8 http://www.justice.gov/atr/public/guidelines/hhi.html 9 P a g e

3 Market scale This section summarises information on the size of the British household electricity and gas markets and comments on the numbers of suppliers entering and exiting them. 3.1 The total gas and electricity markets Around 300TWh of electricity is consumed each year in Great Britain by households and businesses combined. Just over one third (36%) of this power is used by just under 27.2mn households. They account for 91% of all customers by number. The 9% of customers who are businesses therefore account for nearly two thirds (64%) of electricity demand. Some 23.4mn households and business customers consume about 550TWh of gas each year. The 22.6mn household customers (97% of all customers) consume about 350TWh of gas (~55% of total) with the balance of 0.9mn business customers (4%) consuming about 240TWh of gas (~45%). Just over 19mn (85%) households with access to both fuels bought their gas and electricity on a joint or dual fuel contract. Table 3:1 summarises information on the total size of the British gas and electricity markets. Electricity Gas Table 3:1: Overview of British electricity and gas market Fuel Demand Household* Business* All Household dual fuel Customers (k) 27,190 2,775 29,965 Consumption (TWh) 107 189 296 Customers (k) 22,595 882 23,384 Consumption (TWh) 303 241 544 Customers (k) 19,090 N/A N/A Dual fuel as % gas accounts 84.5% N/A N/A Source: Cornwall Energy. Household customers are accounts, business customers are meters live on supply at reporting date. Consumption is energy volume billed to customers in the year to the reporting date. Household figures are for the year to 31 July 2014 and business figures for the year to 30 April 2014. 3.2 The gas and electricity markets for households The number of household gas and electricity customers is steadily increasing. As Table 3:2 shows at 31 July 2014, at 27.19mn household electricity accounts, there were 1.5% more household electricity accounts than at 31 July 2011. The number of household gas accounts rose by a similar 1.9% over the same period to 22.60mn from 22.18mn. Dual fuel contracting in the household energy market increased by 5.8% between 31 July 2011 and 31 July 2014 from 18.04mn accounts to 19.09mn. The proportion of households with access to both gas and electricity that actually bought on a dual fuel basis rose from 81% to 85% over the period. 10 P a g e

Gas (annualised MWh) Electricity (annulised MWh) Table 3:2: Household energy accounts and volume trends Gas accounts (k) Gas volume (TWh) Electricity accounts (k) Electricity volume (TWh) Dual fuel accounts (k) Dual fuel penetration 31/01/2011 22,125 374 26,635 116 17,710 80% 30/04/2011 22,150 354 26,665 113 17,820 80% 31/07/2011 22,175 340 26,790 112 18,035 81% 31/10/2011 22,200 335 26,725 111 17,980 81% 31/01/2012 22,225 297 26,755 108 18,010 81% 30/04/2012 22,250 304 26,790 106 18,235 82% 31/07/2012 22,275 316 26,870 111 18,390 83% 31/10/2012 22,435 315 26,925 110 18,640 83% 31/01/2013 22,460 345 26,955 114 18,715 83% 30/04/2013 22,460 366 27,030 115 18,695 83% 31/07/2013 22,485 363 27,060 115 18,805 84% 31/10/2013 22,510 351 27,090 111 18,850 84% 31/01/2014 22,540 340 27,125 110 18,925 84% 30/04/2014 22,570 314 27,160 108 19,030 84% 31/07/2014 22,595 303 27,190 107 19,090 85% Source: Cornwall Energy. The six month period saw a fall in consumption of both gas and electricity. Annual average household gas consumption fell in the quarter to 30 April 2014 (13,917kWh) and again in the three months to 31 July 2014 (13,392kWh). During the six month period annual average gas consumption dropped 15.7 percentage points. At 30 April 2014 average electricity consumption stood at 3,976kWh, down from 4,066kWh at 31 January 2014. By 31 July 2014, electricity consumption had fallen again, down to 3,943kWh. The six month period saw a fall of 3.0% overall. Figure 3:1: Average annual household energy consumption by rolling average over previous 12 months 18.0 17.0 16.0 4.4 4.3 4.2 4.1 15.0 14.0 13.0 12.0 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 4.0 3.9 3.8 3.7 3.6 Gas Electricity Source: Cornwall Energy. 11 P a g e

3.3 Regional distribution Some 82% of British household energy and gas accounts located in England. The two Welsh regions (South Wales and Merseyside and North Wales) account for 9% of household electricity and gas accounts, with a similar proportion located in Scotland. The Eastern and Southern England regions have the most electricity accounts and the most gas accounts in Great Britain as Table 3:3 shows. Regional access to gas differs across Great Britain. Gas penetration by region (defined as the number of gas accounts divided by the number of electricity accounts) ranges from a low of 55% in North Scotland to 90% in Yorkshire. The only other area outside North Scotland where gas penetration in Great Britain is lower than 80% is the South Western England (72%). (k) Table 3:3: Regional distribution of household electricity and gas accounts 31 July 2014 Elec accounts ( 000) Gas accounts ( 000) Elec minus gas accounts ( 000) Region share of GB elec and gas accounts Gas as % elec Eastern 3,360 2,715 645 12% 81% East Midlands 2,440 2,100 340 9% 86% London 2,040 1,720 320 8% 84% Merseyside and North Wales 1,410 1,170 240 5% 83% Midlands 2,260 1,915 345 8% 85% Northern 1,480 1,275 205 6% 86% North Western 2,175 1,910 265 8% 88% Southern 2,745 2,250 495 10% 82% South Eastern 2,095 1,800 295 8% 86% South Wales 1,040 870 170 4% 84% South Western 1,420 1,020 400 5% 72% Yorkshire 2,110 1,895 215 8% 90% South Scotland 1,930 1,575 355 7% 82% North Scotland 685 380 305 2% 55% All 27,190 22,595 4,595 100% 83% Source: Cornwall Energy. 12 P a g e

3.4 Suppliers entering and exiting the market There has been an increasing number of companies licensed to compete as a supplier in the electricity and gas markets. Supply licence applications and awards are recorded by the industry regulator Ofgem for both gas and electricity. Table 3:4 shows there were 14 applications for gas supply licences in the year to 31 July 2014 and seven applications for electricity supply licences. In the same period, there were 20 gas licence awards and 14 electricity licence awards. It is not certain that all of these awards will lead to new companies supplying households with energy, although they do indicate a continuing high level of interest in competing in the electricity and gas markets. Applications for licences and awards rose in the quarter to 30 April 2014 for both fuels compared with the previous three months. In the quarter to 31 July 2014, gas and electricity supply licence applications fell, as did gas licence awards. There were five electricity licence applications in the quarter to 30 April 2014, two of which were granted in this quarter, and three in the quarter to 31 July 2014. Table 3:4: Gas and electricity supply licence applications and awards Three months up to: Gas licence applications Gas licence awards Electricity licence applications Electricity licence awards 31/01/2011 2 3 4 1 30/04/2011 3 1 10 8 31/07/2011 4 2 5 8 31/10/2011 0 1 0 2 31/01/2012 4 0 4 2 30/04/2012 2 1 2 3 31/07/2012 7 4 5 0 31/10/2012 1 4 2 6 31/01/2013 1 2 7 8 30/04/2013 5 3 1 0 31/07/2013 8 5 15 6 31/10/2013 4 8 2 8 31/01/2014 1 3 0 1 30/04/2014 6 5 5 2 31/07/2014 3 4 0 3 Source: Ofgem data analysed by Cornwall Energy. Licence awards higher than licence applications due to date banding. As discussed in Section 4 the number of suppliers seeking customers in the household market is believed to be at an all-time high. There have been no notable supplier exits during the three years to July 2014. 13 P a g e

4 Competition in household energy This Section comments on trends in competition in supply of household electricity, gas and dual fuel contracts. It references information on: the number of active suppliers; trends in the Herfindahl-Hirschman Index; and market shares of the competing suppliers. At 31 July 2014 there were 19 suppliers selling both electricity and gas to households rising from the 18 that were recorded at 31 January 2014. 19 suppliers were also recorded at 30 April 2014. This is now the highest number of suppliers we have seen since we began regularly reporting on supply competition in 2005. The sections below also outline a small number of companies which in addition sell either one of gas or electricity (rather than both) to households. The 19 companies selling electricity and gas can be broadly grouped as follows: the major suppliers British Gas (Centrica), E.ON UK, EDF Energy, RWE npower, Scottish Power and SSE; medium and small suppliers including producers Ecotricity and Good Energy and stand-alone suppliers Co-op Energy, Economy Energy, First:Utility, Flow Energy, Gnergy, Green Star Energy, Ovo Energy, Spark Energy, Utilita and Utility Warehouse; and Extra Energy joined the market as a supplier of both electricity and gas. 4.1 Competition in household electricity supply In addition to the suppliers noted above, as of 31 July 2014 a further three companies isupply, Green Energy and LOCO2 Energy supplied electricity to households on a single fuel basis. Table 4:1 overleaf therefore shows that there were 16 companies with shares of >1% & <3% providing electricity to domestic customers at 31 July 2014, an increase of seven on the number three years earlier. The major suppliers have experienced a fall in aggregate market share of just under seven percentage points in the three years to 31 July 2014, as Table 4:1 shows. Annualised gross churn has fallen from its peak at 31 January 2014 and is now at a similar level to that recorded at the same time of 2013. All of the major suppliers consistently held more than 10% of the household electricity market during the period 31 January 2011 to 31 July 2014. During the last quarter to 31 July 2014 the major suppliers lost aggregate energy share by 0.9 percentage points, down from 93.6% to 92.7%. A similar reduction in share was posted in the previous quarter to 30 April 2014. The last two quarterly share losses for the major suppliers are smaller than that experienced in the quarter to 31 January 2014 (2.6 p.p.). It was notably large due to the purchase of the Telecom Plus customers back from RWE npower alongside increased sales by several small and medium suppliers in the wake of standard price increases levied in the autumn of 2013 by many of their competitors. The household electricity market in Great Britain is currently deemed a moderately concentrated one with an HHI of just over 1,550 at 31 July 2014, down from just over 1,600 at 31 January 2014. As Figure 4:1 overleaf shows, of the 22 companies supplying households with electricity at 31 July 2014, six major suppliers held shares over 10% with the remainder continuing to hold shares on an individual basis of >1% & <3%. 14 P a g e

Number of suppliers Herfindahl-Hirschman Index Electricity Table 4:1: Competition in household electricity supply Suppliers with >10% Suppliers with >3% & <10% Suppliers with >1% & <3% Aggregate major supplier share Annualised gross churn (%) 31/01/2011 6 0 8 99.4% 17.3% 30/04/2011 6 0 8 99.4% 16.3% 31/07/2011 6 0 9 99.3% 17.1% 31/10/2011 6 0 9 99.3% 16.7% 31/01/2012 6 0 9 99.1% 11.9% 30/04/2012 6 0 9 98.8% 11.5% 31/07/2012 6 0 9 98.6% 12.1% 31/10/2012 6 0 9 98.3% 14.0% 31/01/2013 6 0 9 97.9% 12.3% 30/04/2013 6 0 11 97.7% 11.0% 31/07/2013 6 0 13 97.4% 10.1% 31/10/2013 6 0 13 97.2% 11.6% 31/01/2014 6 0 15 94.6% 18.4% 30/04/2014 6 0 16 93.6% 11.8% 31/07/2014 6 0 16 92.7% 10.3% Source: supplier shares of accounts from Cornwall Energy data. Gross churn calculated from DECC and Energy UK figures on total switches expressed as a share of Cornwall Energy s assessments of total household electricity accounts and multiplied by 4 to give annualised figure. Figure 4:1: Measures of competitiveness domestic electricity accounts 1,850 20 1,800 1,750 15 10 5 1,700 1,650 1,600 1,550 1,500 1,450 0 1,400 >10% >3% & <10% >1% & <3% HHI 15 P a g e

4.2 Competition in household gas supply At 31 July 2014 there were three companies Better Energy, Daligas and Zog Energy supplying only gas to households in addition to the dual fuel energy suppliers noted above. There were no new entrants to the gas only market during the six month period. The total number of companies beyond the major suppliers providing gas to households at 31 January 2014 rose by one to 16 with the entry of Extra Energy. In the two quarters to 31 July 2014 there were three major suppliers with a share of more than 10%, down from four registered at 31 January 2014. During the same time period the major suppliers saw a fall in aggregate market share, falling to 93.4% at 30 April and 92.4% at 31 July. Share fell faster in the domestic gas market over the six months to 31 July 2014, down 2.5 percentage points over the six months compared to 1.9 in domestic electricity. The other suppliers now hold a larger share in the domestic gas market than in electricity while the reverse was true at 31 January 2014. Three major suppliers held shares over 10% of the domestic gas market at 31 July 2014, down from four at 31 January 2014. Three major suppliers registered a share of >3% & <10% at 31 July 2014, rising from two at 31 January 2014. 16 suppliers served >1% & <3% of the market in the two most recent quarters of 2014, as Table 4:2 below shows. Gas Table 4:2: Competition in household gas supply Suppliers with >10% Suppliers with >3% & <10% Suppliers with >1% & <3% Aggregate major supplier share Annualised gross churn (%) 31/01/2011 4 2 9 99.5% 16.8% 30/04/2011 4 2 9 99.4% 13.8% 31/07/2011 4 2 9 99.3% 15.7% 31/10/2011 4 2 9 99.3% 16.2% 31/01/2012 4 2 9 99.2% 11.8% 30/04/2012 4 2 9 98.9% 9.3% 31/07/2012 4 2 9 98.7% 10.5% 31/10/2012 4 2 9 98.3% 11.7% 31/01/2013 4 2 9 98.0% 8.7% 30/04/2013 4 2 11 97.8% 8.0% 31/07/2013 4 2 13 97.4% 8.3% 31/10/2013 4 2 14 97.3% 8.9% 31/01/2014 4 2 15 94.9% 14.9% 30/04/2014 3 3 16 93.4% N/A 31/07/2014 3 3 16 92.4% N/A Source: Cornwall Energy. Shares based on energy accounts. Gross churn calculated from DECC figures on total household gas switches expressed as a share of Cornwall Energy s assessments of total household gas accounts. Complete switching figures for quarters to 30 April 2014 and 31 July 2014 not available at time of publication. Competitiveness in domestic gas accounts, as measured by HHI and shown in Figure 4:2 has been increasing in recent years. The HHI fell from 2,281 in January 2014 to 2,222 in at April 2014, dropping further still in the quarter to 31 July (2,185). 16 P a g e

Number of suppliers Herfindahl-Hirschman Index 25 20 Figure 4:2: Measures of competitiveness domestic gas accounts 3,000 2,500 15 10 5 0 2,000 1,500 1,000 500 0 >10% >3% & <10% >1% & <3% HHI 4.3 Competition in household dual fuel supply At 31 July 2014 there were 19 companies supplying both electricity and gas to household customers, as noted above. Aggregate major supplier dual fuel market share fell to 91.0% at 31 July 2014 from 93.9% at 31 January 2014. Five of the major suppliers held a market share above 10% at 31 July 2014. This number has fallen as at 31 January and 30 April all six major suppliers registered a share over 10%. The number of companies supplying >1% & <3% of the domestic market rose from 12 to 13 between the end of January and the end of July. Table 4:3 overleaf summarises information on market shares in dual fuel supply. Figure 4:3 also overleaf shows that dual fuel HHIs have also been on a downward trend, falling below 2,000 by 31 October 2013. By 31 July 2014, HHI for dual fuel fell to 1,725, down from 1,821 at 31 January 2014 and 1,761 at 30 April 2014. 17 P a g e

Number of suppliers Herfindahl-Hirschman Index Gas Table 4:3: Competition in household dual fuel supply Suppliers with >10% Suppliers with >3% & <10% Suppliers with >1% & <3% Aggregate major supplier share 31/01/2011 5 1 6 99.4% 30/04/2011 5 1 6 99.3% 31/07/2011 5 1 6 99.2% 31/10/2011 4 2 6 99.1% 31/01/2012 4 2 6 99.0% 30/04/2012 4 2 7 98.6% 31/07/2012 4 2 7 98.4% 31/10/2012 5 1 7 98.0% 31/01/2013 5 1 7 97.6% 30/04/2013 5 1 8 97.4% 31/07/2013 5 1 9 96.9% 31/10/2013 5 1 10 96.4% 31/01/2014 6 0 12 93.9% 30/04/2014 6 0 13 92.2% 31/07/2014 5 1 13 91.0% Source: Cornwall Energy. Figure 4:3: Measures of competitiveness domestic dual fuel accounts 20 2,500 18 16 2,000 14 12 1,500 10 8 1,000 6 4 500 2 0 0 >10% >3% & <10% >1% & <3% HHI Source: Cornwall Energy. 18 P a g e

4.4 Regional trends A feature of the domestic energy retail market is one of legacy regional markets. Five of the vertically integrated players have an electricity heritage in the pre-liberalisation Public Electricity Supply (PES) areas, with the other (British Gas) supplying all gas consumers at market opening. As competition has evolved, the larger retailers have focused on converting legacy customers into dual fuel customers in their home areas and adding new sales from customers located elsewhere. Some of the other suppliers concentrate their activities on particular areas of the country, while others compete on a national basis. There are now three regions in which the incumbent supplier no longer holds the highest market share of household electricity accounts, up from two reported at 31 January 2014. The regions are North West, Midlands and Yorkshire. The number of regions in which the incumbent supplier no longer holds the highest market share of gas continues to be two. The regions are South Wales and North Scotland. Table 4:4 summarises this information. Table 4:4: Number of electricity supply regions where the incumbent gas or electricity supplier does not have the highest market share No. of regions 31-Jan 30-Apr 31-Jul 31-Oct 2011 2 2012 3 3 3 3 2013 3 4 4 4 2014 4 5 5 - Source: Cornwall Energy. Data is not available before 31 October 2011. 4.5 Churn rates One way of measuring activity in the energy markets is the extent to which customers switch supplier. DECC 9 and Energy UK 10 collect statistics on the total numbers each month of household electricity and gas switches. Expressing the total number of switches for a fuel as a proportion of the total number of accounts yields the gross churn ratio. As Table 4:6 shows, gross churn in household electricity decreased during the six month period to 31 July 2014, falling from an annualised rate of 18.0% in the quarter to 31 January 2014 to 10.3% at 31 July 2014. The most up-to-date quarterly gas switching figures show that household gas accounts were switched at an annualised rate of 14.9% in the three months to 31 January 2014. This was six percentage points higher than the rate recorded the previous quarter, matching the significant rise in gross electricity churn over the same period (6.4pp). 9 https://www.gov.uk/government/statistical-data-sets/quarterly-domestic-energy-switching-statistics 10 www.energy-uk.org.uk/publication/finish/5-research-and-reports/1180-electricity-switching-figures-august-2014.html 19 P a g e

Table 4:5: Total household electricity and gas switches annualised gross churn (k) Elec switches Elec accounts Elec churn (%) Gas switches Gas accounts Gas churn (%) 31/01/2011 1,151 26,635 17.3% 929 22,125 16.8% 30/04/2011 1,084 26,665 16.3% 764 22,150 13.8% 31/07/2011 1,146 26,790 17.1% 868 22,175 15.7% 31/10/2011 1,118 26,725 16.7% 899 22,200 16.2% 31/01/2012 798 26,755 11.9% 653 22,225 11.8% 30/04/2012 768 26,790 11.5% 515 22,250 9.3% 31/07/2012 815 26,870 12.1% 584 22,275 10.5% 31/10/2012 943 26,925 14.0% 655 22,435 11.7% 31/01/2013 832 26,955 12.3% 491 22,460 8.7% 30/04/2013 745 27,030 11.0% 449 22,460 8.0% 31/07/2013 684 27,060 10.1% 464 22,485 8.3% 31/10/2013 786 27,090 11.6% 499 22,510 8.9% 31/01/2014 1,222 27,125 18.0% 839 22,540 14.9% 30/04/2014 804 27,160 11.8% N/A 22,570 N/A 31/07/2014 697 27,190 10.3% N/A 22,595 N/A Source: Cornwall Energy for number of household accounts and DECC/Energy UK for total household switches by fuel. Gross churn calculated as number of switches divided by number of household accounts multiplied by 4 to give annualised value. Complete switching figures for quarters to 30 April 2014 and 31 July 2014 not available at time of publication. Figures for 31 October 2013 and 31 January 2014 may vary from the last report due to changes in source material used for the last two quarters of each update. 20 P a g e