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Competition Economics

Working with our subsidiary, Compass Lexecon, FTI Consulting provides expert advice and testimony across a full range of complex competition and regulatory issues that arise within the energy sector. We use cutting-edge industrial organisation theory and sophisticated econometric analyses to understand the dynamic nature of energy markets, the interactions between consumers and energy providers and the implications of structural and regulatory change across the supply-chain.

Our Service Offerings

Understanding Market Dynamics

Energy suppliers are facing major changes in their business from both increased competition from new entrants and new technologies changing the way they interact with consumers. All this is happening alongside a continued stream of scrutiny from competition authorities and regulators. FTI Consulting and its subsidiary, Compass Lexecon are experts in understanding these changes and challenges and understanding how these markets work. Compass Lexecon specialises in competition economics with experience assessing issues relating to market power, closeness of competition, consumer behaviour, vertical integration and tacit-co-ordination in the context of sectoral investigations, merger analysis and antitrust proceedings. In a recent case, for example, we have worked with a large utility supplier in the context of a market investigation to assess the impact of new entrant pricing models on demand and to demonstrate the restriction on competition resulting from ineffective regulation.

Consumer Behaviour

Politicians and the media have continued to focus on empowering consumers in their critiques of the retail energy markets. Understanding consumer behaviour is therefore key to engaging and shaping these discussions and in particular the remedies proposed by regulators to try and engage customers in the retail energy market. FTI’s subsidiary, Compass Lexecon has used industrial organisation and behavioural economic theory as well as economic modelling and econometric techniques to assess customer engagement and switching behaviour in response to pricing levels, pricing structures and product offerings. Recent work has, for example, used econometric analysis to consider both the magnitude of bill savings that would trigger a consumer response and consumer preferences for price and non-price product attributes.

Pricing & Profitability Analysis

At all levels of the supply chain, energy producers and suppliers are facing competing pressures to cut costs, meet regulatory requirements and improve efficiency and services. Fundamental to understanding the implications of these is pricing and profitability analysis. Our subsidiary, Compass Lexecon and FTI Consulting have undertaken detailed assessments of earnings, return on capital, efficiencies, asset valuations and profitability benchmarking. In a recent example, FTI Consulting has undertaken an analysis of the cost and margin assumptions used by a National Competition Authority in its profitability benchmarking in order to both rebut the analysis and understand the implications for our clients’ future earnings.

Regulatory Interventions

The energy market faces a complex and changing matrix of regulatory requirements. Understanding the interplay between these regulations and the, potentially unintended, implications on consumer and supplier behaviour, is vital to helping suppliers work proactively with regulators to ensure any interventions are effective without resulting in unnecessary restrictions. FTI Consulting and its subsidiary, Compass Lexecon work with clients to provide the analytical frameworks and modelling to demonstrate the impact of regulatory intervention as well as providing the strategic support needed for energy companies to effectively engage with and shape their regulatory environment.

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