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UK: Ofgem toughens stance against suppliers

  • United Kingdom
  • Energy and infrastructure - Clean energy

05-05-2022

“The challenges that our customers face today should be a call to action for energy retailers to improve things, both in the way they do business to ensure it is resilient, and in the way that they treat customers.” 

Ofgem Chief Executive Jonathan Brearley made the above statement just before Easter when announcing that Ofgem was intending to tighten its oversight of suppliers in two areas: initiating Market Compliance Reviews to assess licence compliance, focussing on direct debits and credit balances; and developing proposals to tackle the “misuse” of customer credit balances and renewables payments by examining ways to ringfence monies held. The Secretary of State for BEIS has now announced that Ofgem has initiated a number of Compliance Reviews.

Whilst recognising the challenging market that suppliers are operating in – not least because of the current volatility related to the Ukraine invasion – Ofgem’s view is that it is consumers who are bearing the brunt of the challenges. The unprecedented 51% rise in the price cap on 1 April 2022 reflects the impact on consumers. Ofgem is increasing its scrutiny of supplier behaviour and reviewing with Government potential increases to its powers to enable it to take additional steps to protect consumers.

Ofgem says that suppliers are reacting to the market changes by allowing levels of customer service to deteriorate. In this context, Ofgem’s market and sector research has identified a handful of themes:

suppliers increasing direct debit payments by more than is necessary;
suppliers using the proceeds of surplus direct debit payments as risk-free capital;
suppliers directing customers to tariffs that may not be in their best interests;
vulnerable customers being inappropriately treated when falling into difficulties; and
suppliers failing to abide by their licence conditions when working with customers in financial distress.
These issues will undoubtably be front and centre of Ofgem’s focus when assessing compliance against licence conditions. It promises tough and decisive action against suppliers where customer service falls short of expectations. 
Ofgem’s statement follows recent changes to its Enforcement Guidelines and its Statement of Policy with respect to Financial Penalties and Consumer Redress, announced last month, which signals a greater appetite for it to take formal enforcement action. Ofgem can issue penalties of up to 10% of turnover. You can read our summary of the changes here.
Louise Howarth, Partner, comments: 
“Ofgem has faced some criticism for its prior regulation of the supplier market, particularly regarding new entrants, and it is clear that supplier conduct is a key priority. Licensees should be working carefully to engage with Ofgem’s compliance reviews to avoid further escalation and the sector should expect a significant amount of scrutiny over the coming months.”
For further information, please contact:
“The challenges that our customers face today should be a call to action for energy retailers to improve things, both in the way they do business to ensure it is resilient, and in the way that they treat customers.” 

Ofgem Chief Executive Jonathan Brearley made the above statement just before Easter when announcing that Ofgem was intending to tighten its oversight of suppliers in two areas: initiating Market Compliance Reviews to assess licence compliance, focussing on direct debits and credit balances; and developing proposals to tackle the “misuse” of customer credit balances and renewables payments by examining ways to ringfence monies held. The Secretary of State for BEIS has now announced that Ofgem has initiated a number of Compliance Reviews.

Whilst recognising the challenging market that suppliers are operating in – not least because of the current volatility related to the Ukraine invasion – Ofgem’s view is that it is consumers who are bearing the brunt of the challenges. The unprecedented 51% rise in the price cap on 1 April 2022 reflects the impact on consumers. Ofgem is increasing its scrutiny of supplier behaviour and reviewing with Government potential increases to its powers to enable it to take additional steps to protect consumers.

Ofgem says that suppliers are reacting to the market changes by allowing levels of customer service to deteriorate. In this context, Ofgem’s market and sector research has identified a handful of themes:

  • suppliers increasing direct debit payments by more than is necessary;
  • suppliers using the proceeds of surplus direct debit payments as risk-free capital;
  • suppliers directing customers to tariffs that may not be in their best interests;
  • vulnerable customers being inappropriately treated when falling into difficulties; and
  • suppliers failing to abide by their licence conditions when working with customers in financial distress.

These issues will undoubtably be front and centre of Ofgem’s focus when assessing compliance against licence conditions. It promises tough and decisive action against suppliers where customer service falls short of expectations. 

Ofgem’s statement follows recent changes to its Enforcement Guidelines and its Statement of Policy with respect to Financial Penalties and Consumer Redress, announced last month, which signals a greater appetite for it to take formal enforcement action. Ofgem can issue penalties of up to 10% of turnover. You can read our summary of the changes here.

Louise Howarth, Partner, comments: 

“Ofgem has faced some criticism for its prior regulation of the supplier market, particularly regarding new entrants, and it is clear that supplier conduct is a key priority. Licensees should be working carefully to engage with Ofgem’s compliance reviews to avoid further escalation and the sector should expect a significant amount of scrutiny over the coming months.”

For further information, please contact: