Consumer Vulnerability Strategy: Debt and disconnection

We are currently updating our consumer vulnerability strategy and have published an open letter on our progress. Please contact CDconsultations@ofgem.gov.uk if you would like to engage with us on the strategy.

Debt

Suppliers must take ’all reasonable steps’ to ascertain a customer’s ability to pay and must take this into account when calculating debt repayment installations or agree debt repayment plans that are affordable for the customer. 

Following concerns about whether suppliers were properly taking customers’ ability to pay into account in setting debt repayment rates, we introduced six key principles suppliers should adopt to ensure that they are properly and proactively considering a customer’s ability to pay.

These principles reflect the key considerations which the Authority (our governing body) will look for, and take into account, along with any other relevant factors, when assessing compliance with a supply licence condition. The principles are:

  1. Having appropriate credit management policies and guidelines
  2. Making proactive contact with customers
  3. Understanding individual customer’s ability to pay
  4. Setting repayment rates based on ability to pay
  5. Ensuring the customer understands the arrangement
  6. Monitoring arrangements after they have been set up

Suppliers can object to a customer switching to another supplier when the customer has outstanding debt. We have reviewed the current objections regime to determine if debt objections should be part of a faster, more reliable switching process or if suppliers should develop other ways of managing debt risk. We have made the decision to retain the existing regime because we think removing objections would increase bills for most domestic customers– see our decision document for more information.

Disconnections 

Disconnection due to debt should only be considered as a very last resort by suppliers.

Energy companies must not disconnect a domestic customer who has not paid their bills unless they have first taken all reasonable steps to recover those charges.

Suppliers are also prohibited by their licence from knowingly disconnecting  during winter consumers that are of a pensionable age, or solely live with people that are of a pensionable age or under 18. Additionally, they must take all reasonable steps during winter to avoid disconnecting those that are disabled or chronically sick.

Many suppliers have also signed up to a “Safety Net”, a pledge to never knowingly disconnect a vulnerable customer at any time of year.

Find more information about Energy supply disconnection and prepayment meter rules

Self-disconnection and self-rationing

Self-disconnection occurs when prepayment meter (PPM) customers experience an interruption to their electricity or gas supply due to a lack of credit on their account or meter. Closely associated with this is self-rationing for PPM customers. This is when customers may deliberately limit their energy use to save money, or restrict spending in other essential areas in order to keep their meter topped up.

We are concerned about the impact of self-disconnection and self-rationing on PPM customers and the level of support provided to these customers. In November 2018 we launched a call for evidence to gather evidence on the scale of the problem, quality of support and supplier practices in this area. The call for evidence closed on 10 December 2018. We will consider all the evidence received and publish a summary of responses and our proposed next steps by Spring 2019. 

Backbilling

A backbill is a ‘catch-up’ bill sent to you by your gas or electricity supplier when you haven’t been correctly charged for your energy use. Such bills can leave customers in debt. 

Backbilling protections for domestic customers have been in effect since May 2018. These protections mean a supplier can’t seek additional payment for unbilled energy used more than 12 months prior to the error being detected and a corrected bill being issued. For more details see Energy Back-billing project

Alternative branding

Alternative branding is where the supplier’s customer correspondence is branded with a name that is not the energy suppliers (e.g. on the letter head), implying that it comes from a different organisation. This can mislead a customer, in an attempt to draw their attention to the money owed.

In 2014, we investigated the use of alternative branding by suppliers. It gave our expectations for suppliers’ communications– that they should be transparent and comply with our ability to pay principles. We want companies to meet and exceed the standards expected of them by their own customers and the public more generally. 

Through the publications and update feed below you can access our publications and outputs produced in relation to debt and disconnection.

Publications and updates

  • Published: 25th Jul 2016
  • Decisions
  • 4 Associated documents
We have reviewed the current objections regime as part of our ongoing commitment to ensure it is working in the best interest of consumers.

  • Published: 31st Mar 2016
  • Open letters and correspondence
  • 1 Associated documents
As part of our scrutiny of microbusiness back-billing, we sought updated information from suppliers’ on their performance. This letter outlines our findings and next steps.

  • Published: 22nd Sep 2014
  • Open letters and correspondence
  • 1 Associated documents
We have reviewed energy companies’ use of alternative branding to communicate with indebted customers. This letter details our findings and sets out our expectations of energy companies’ debt collection communications and our next steps.

  • Published: 7th Dec 2013
  • Open letters and correspondence
  • 1 Associated documents
This letter summarises data provided by suppliers following a request by Ofgem, relating to their back-billing of micro-business customers between April 2012 and March 2013.

  • Published: 20th Dec 2012
  • Open letters and correspondence
  • 1 Associated documents
A review of suppliers’ approaches and our good practice expectations, when dealing with non-domestic debt and disconnection.

  • Published: 5th Oct 2012
  • Open letters and correspondence
  • 1 Associated documents
Open letter updating Ofgem’s position on non-domestic back-billing.

  • Published: 6th Dec 2011
  • Open letters and correspondence
  • 1 Associated documents
Ofgem's response to ERA and ICOSS following the development of draft Standards to address non-domestic back-billing

  • Published: 7th Feb 2011
  • Reports and plans
  • 1 Associated documents
Research into customer reactions to alternative disconnection methods for credit customers and alternatives to self disconnection for those who run out of credit on a PPM.

  • Published: 8th Sep 2010
  • Decisions
  • 5 Associated documents
Modification Direction for the insertion of Standard Licence Condition 27.11 (A) obliging licensees to take all reasonable steps to ascertain the status of a customer and the occupants of any affected domestic premises before disconnection.

  • Published: 16th Aug 2010
  • Guidance
  • 1 Associated documents
Guidance to suppliers on the licence conditions relating to disconnection and prepayment meters where a supplier has installed a smart meter and has the capability to remotely disconnect the premises or switch the customer to prepayment terms.

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