- Decision on Introducing a Minimum Capital Requirement and Ringfencing Customer Credit Balances by Direction:
- Consumer Standards - Statutory Consultation
- Non-domestic market review: Findings and Policy consultation
- Non-Domestic Best Practice Guide for Security Deposits
- Consumer standards qualitative research
Energy regulator Ofgem has today (Wednesday 26 July) proposed a series of reforms to further improve standards of customer service for both businesses and households.
Following extensive engagement with energy suppliers, businesses, consumers and other organisations, Ofgem is today announcing the publication of:
- A Non-Domestic Market Review findings and consultation: non-domestic refers to anything that is not a household. Many businesses throughout the country are struggling with energy market issues. The review summarises the challenges they face, and proposes a number of actions for the sector, Ofgem and Government to address.
- A Consumer Standards Statutory Consultation: There has been a decline in overall consumer satisfaction with customer service by domestic energy suppliers since 2018. Considerable work is already underway to address this. Ofgem is proposing new rules to ensure that all domestic customers, regardless of which supplier they are with, can contact their supplier and get support if they are struggling to pay.
- Minimum Capital Requirements for supplier finances: Ofgem wants all energy suppliers to be financially secure to ensure consumers benefit from a stable energy market. To that end, Ofgem is today announcing a decision on the level of capital that suppliers are required to hold to ensure they are more resilient to severe but plausible market shocks. Ofgem is also proceeding with proposals to have the power to direct suppliers to ringfence a portion of their customer credit balances when it is deemed to be in the consumer interest.
Ofgem’s proposals would establish expectations to ensure all consumers receive a consistent and acceptable level of service regardless of the company they are with.
The regulator is taking these steps to drive up standards before this winter to make sure customers – particularly those in a vulnerable situation – are properly served, and to strengthen protections for business energy customers.
For households, the proposals include:
- Requiring energy supplier enquiry lines to stay open longer, including evenings and weekends – and be easier to contact via multiple methods such as email, webchat or other digital-based platforms.
- Enabling more effective support for customers struggling with bills, including early intervention to identify and offer support such as temporary repayment holidays when consumers are unable to pay.
- Prioritising customers in vulnerable situations, or their representatives, who may need immediate assistance.
- Making 24/7 emergency support available for customers who are cut off from their power or gas supply due to issues with their supplier (e.g. meter faults).
- Compelling suppliers to make information available on customer service performance to help inform consumer choice when switching, and further drive improvements in service.
For the non-domestic market, some of the immediate changes Ofgem has taken to help the non-domestic energy market include working with industry to adapt the Retail Energy Code to avoid excessive delays and unreasonable requests for documentation during tenancy changes and urging suppliers to be more flexible with businesses who signed up for peak fixed rate prices.
But there are issues flagged in the review that require regulatory change, so Ofgem is announcing it will consult on:
- Introducing better complaint handling between suppliers and businesses - the review heard businesses did not always get the right level of customer service.
- Extending micro business protections to all businesses so energy bills spell out what is being paid to energy brokers plus allowing businesses to resolve disputes through a redress scheme.
- Creating better guidance over ‘deemed contract rates’ between customers who have not yet agreed contractual terms with a supplier to avoid problems like overcharging.
As Ofgem’s powers in non-domestic retail market are more limited than in the domestic sector, it is asking government to consider further protections in areas it doesn’t have the power to regulate, like energy brokers. Ofgem is also asking for businesses to be given access to the energy ombudsman. It also calls for further consideration for vulnerable domestic consumers on non-domestic contracts – like people who live in care homes, social housing and in mobile home parks – who are at risk of missing out on important protections.
Neil Lawrence, Director at Ofgem, said: “Suppliers are short-changing too many of their customers, who deserve better.
“Customers need more support when they are struggling and should be able to contact their supplier without frustration or undue delay when they need help.
“The plans we are announcing put the welfare of business and domestic consumers first and set out a comprehensive package to tackle poor behaviour by energy suppliers.
“Good customer service is important for all consumers, but it can make a critical difference to welfare and the safety of the most vulnerable.
“While we have seen good practice from some suppliers, we expect every company to raise the bar to provide a consistent service that customers can rely on – and this mission should be driven from the top.
“We believe these recommendations can make a positive difference to consumers and we aim to have changes in place before the cold winter months return.”
Ofgem chief executive Jonathan Brearley recently visited Manchester, where he met with several businesses and learnt first-hand about issues troubling the business community because of energy costs and severe stress caused by volatile prices.
Mr Brearley also met with Sacha Lord, the Manchester Nighttime Economy Advisor, who has welcomed Ofgem’s market review.
Mr Lord said: “These proposals would be a major step forward in ensuring customers are given fair and proper protections against energy companies who have not been as transparent as they could have been.
“Every week we are being contacted by restaurants, pubs and bar owners up and down the country - the backbone of our hospitality sector - who simply cannot see a viable way forward.
“Ofgem has led the way on efforts to hold energy companies to account. Reforms that properly protect the rights of consumers could not be more vital and I welcome them wholeheartedly.”
In keeping with Ofgem’s commitment to build a healthy, financially resilient energy market, the regulator is also announcing the introduction of a new minimum capital requirement. This will comprise a Capital Floor of £0 and Capital Target of £115 Adjusted Net Assets per dual fuel equivalent customer.
The new rules, which will take effect from 31 March, 2025, will ensure that companies have a level of capital to make them more resilient to any sudden changes in market conditions, such as the price shock in 2021 that prompted the failure of 30 suppliers.
This follows Ofgem’s open letter to suppliers on 4 July, where chief executive Jonathan Brearley warned that the regulator is ready to act against suppliers that do not yet have sufficient capital if they use profits for paying dividends above recapitalising.
While Ofgem has always been clear that reasonable profits are essential for a sustainable and well-functioning sector, the letter made clear that financial resilience must be prioritised.
The minimum capital requirement builds on this mission to create long-term stability in the market by reducing the likelihood of future supplier failures and reducing the cost of failure should it occur. In addition, the power to direct suppliers to ringfence a portion of their customer credit balances gives Ofgem the tools to respond when suppliers operate unsustainably and over rely on these funds for working capital.
NOTES TO EDITORS:
Next steps are:
- A statutory consultation on domestic consumer standards opens for submissions on 26 July, 2023, and will close four weeks later, on 23 August, 2023.
- A decision on domestic consumer standards is expected to be published by early October. Ofgem is proposing to have many of these requirements in place by December 2023 to help protect and support consumers from Winter 2023-24 onwards. We are seeking views from stakeholders on our proposed implementation timescales.
- This consultation is informed by evidence, research and stakeholder feedback, including a series of ‘deep dive’ Market Compliance Reviews which examined numerous areas across the energy sector including customer service.
- Data we collect as part of regular monitoring from our joint Consumer Perceptions of the Energy Market survey with Citizens Advice shows overall domestic consumer satisfaction with customer service from their energy supplier decreased from 74% in Q4 2018 to 66% in Q4 2022.3
- Proposals from the non-domestic review will be published in a statutory consultation in autumn 2023 with any licence changes expected to be implemented in winter 2023/24.
- Consumer Standards statutory consultation document
- Non-domestic review document
- Minimum Capital Requirement document