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 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.
UKHospitality Chief Executive Kate Nicholls said:
“Ofgem’s market review is extremely welcome, as energy continues to be a critical concern for hospitality businesses. It’s great to see that our ongoing campaigning has been acknowledged and that action is being taken to provide some much-needed support.
“By opening up new channels of communication, extended protections and more guidance, businesses across the industry can benefit from levels of support that simply have hitherto been lacking.
“UKHospitality has continued to raise the reckless behaviour of some energy suppliers with Government, with some offering rates well above wholesale prices, hiking standing charges, demanding eye-watering deposits, and, in some cases, refusing to work with hospitality companies. A recent member survey shows that energy costs are up 80% year-on-year and almost half of businesses who signed a contract at the peak of the energy crisis fearing their business is at risk of failure.
“Whilst it has been a long time coming, it is reassuring to see that Ofgem is now doing what it can to support the hospitality sector.
“Energy companies must be held to account, and we are committed to continuing to work with Ofgem and Government to ensure the market is future-proofed. The recommendations in this review must be actioned urgently, as delays could lead to further business failures – of which there have been a significant number.”