Global menu

Our global pages

Close

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:

Louise Howarth, Partner
Neil Donald, Senior Associate
Mark Howarth, Partner

< Go back

Print Friendly and PDF

© Eversheds Sutherland 2022. All rights reserved. Eversheds Sutherland is a global provider of legal and other services operating through various separate and distinct legal entities.

Eversheds Sutherland is the name and brand under which the members of Eversheds Sutherland Limited (Eversheds Sutherland (International) LLP and Eversheds Sutherland (US) LLP) and their respective controlled, managed and affiliated firms and the members of Eversheds Sutherland (Europe) Limited (each an "Eversheds Sutherland Entity" and together the "Eversheds Sutherland Entities") provide legal or other services to clients around the world. Eversheds Sutherland Entities are constituted and regulated in accordance with relevant local regulatory and legal requirements and operate in accordance with their locally registered names. The use of the name Eversheds Sutherland, is for description purposes only and does not imply that the Eversheds Sutherland Entities are in a partnership or are part of a global LLP. The responsibility for the provision of services to the client is defined in the terms of engagement between the instructed firm and the client.