Three energy suppliers pay £8 million for customer compensation failures
Three GB domestic energy suppliers have paid a total of £8 million for delaying or failing to make statutory compensation payments owed to energy customers, with this money going to directly benefit consumers.
E.On Next, Good Energy and Octopus Energy either missed or unduly delayed the compensation payments, which are due if a supplier does not provide a final bill within six weeks when a customer switches to another provider.
Energy regulator Ofgem brought in additional 'Guaranteed Standards of Performance' (GSOP) to reduce delays in final billing in May 2020. Since their introduction, this is the first time the regulator has taken compliance action on GSOP compensation delays, in relation to final billing performance standards.
The rules ensure that suppliers provide compensation to customers when:
- energy supplier switches are delayed
- customers are erroneously switched, or
- final bills are produced too late, all things which can cause customers unnecessary stress and potentially financial harm.
The standards will be increasingly important this year with switching activity predicted to increase again as the energy market recovers and customers begin to shop around for cheaper tariffs.
Neil Kenward, Director for Strategy at Ofgem, said:
“Ofgem introduced these standards to make sure customers get the service they deserve when switching energy supplier.
Our rules mean that where energy companies drag their heels, customers are automatically compensated. We won’t hesitate to hold energy companies to account, as we have done today.
As the energy market starts to recover, we’ll likely see a return to more switching, and this action is a reminder to suppliers that they need to make switching as easy and convenient as possible for their customers, and where they cause undue delay, pay compensation swiftly.”
These Guaranteed Standards of Performance regulations (GSOP), mandated by Ofgem, entitle an affected customer to a ‘Standard’ one-off compensation payment of £30 if a final bill is not produced within six weeks.
If this compensation is not provided within a further 10 working days, a customer is due an 'Additional Standard' GSOP compensation payment of another £30.
Previously, no compensation was due for such delays and the GSOP regulations were introduced to encourage suppliers to quickly fix the most harmful switching related problems. Not getting a final bill in a timely manner can result in a consumer being incorrectly set up at the new supplier, being in debt at the old supplier and receiving a large, unexpected bill.
During compliance engagement with the companies, Ofgem established that the three suppliers either missed or unduly delayed GSOP compensation payments worth £6,305,925. Over 100,000 customers were affected, and some waited more than a year to receive compensation.
The problems occurred because the suppliers' billing processes and systems were not set up to deliver the GSOP payments in line with the timeframes set out in the regulations.
Ofgem has engaged with these suppliers to ensure all affected consumers received the payments to which they were entitled:
- The biggest portion of that sum was met by E.On Next, paying a total of £5.5 million to almost 95,000 customers.
- Octopus Energy paid approximately £750,000 to 19,000 customers,
- Almost 350 Good Energy customers received a combined total of £18,000.
Suppliers paid an additional compensation of £1.7 million to customers or the Energy Industry Voluntary Redress Scheme (EIVRS), which supports vulnerable consumers.
This included £1.3 million from E.On Next to the EIVRS in recognition of system failings and compensation delays. This money will be spent on targeted local energy saving projects, further helping customers.
All three suppliers have also now updated their billing processes and systems to ensure payments will now be made in line with the regulations. Affected customers do not have to do anything to claim their refund; the payments have now been made by the suppliers involved.
This is one example of alternative action resulting from Ofgem’s engagement with energy companies regarding the obligations of their licence or the requirements of competition and consumer protection law, all part of Ofgem’s robust compliance and enforcement activity.
Following a self-report from E.On Next regarding GSOP compensation for final bills, Ofgem acted on the issues raised during further supplier engagement.
The GSOP rules and 2020 amendment are set out on the government’s legislation website.
Where it has not been possible to process redress in specific cases, the suppliers involved agreed to make payments to the Energy Industry Voluntary Redress Fund. The fund is administered by the Energy Saving Trust. They have been appointed by Ofgem to distribute payments from the fund to help support energy consumers in vulnerable situations.
Ofgem expects suppliers to have robust governance and risk management processes in place with the ability to identify and mitigate the risk of consumer detriment. Suppliers must ensure their systems, processes and practices are compliant with all regulatory requirements even when these only apply to a specific set of customers or only apply in specific circumstances.
Ofgem has used a compliance approach in these cases and considers that that this alternative action will act as a deterrent to future non-compliance. Where any further non-compliance is identified, Ofgem will strongly consider taking formal action in accordance with our Enforcement Guidelines.