Ofgem consultation on consumer standards for suppliers

Ofgem has published a consultation on new consumer standards for energy suppliers.   

The key proposals are:

• enhancements to customer service standards in two “priority areas”, being the ease with which customers can contact suppliers, and the support provided to customers who are struggling with bills; and
• an ‘overarching framework’ to underpin customer service standards. 

Ofgem states that the intention of the overarching framework is to be ‘forward looking’, ensuring that as energy market regulation is developed, customer service standards are maintained.

These proposals follow Ofgem’s proposed supplier minimum capital adequacy requirements (read our comment here). The thinking behind the overarching framework seems to mark a further significant step towards an increasingly regulated supply sector.  Indeed, it is interesting to see Ofgem drawing on tools (namely the “broad measure of customer satisfaction” or “BMCS” incentive scheme) it uses to regulate monopoly energy networks under the RIIO regime, where Ofgem’s regulation is needed to compensate for a lack of commercial drivers to meet customer service expectations.  

The Consultation requests responses from stakeholders with an interest in consumer standards by 31 May 2023, and based on responses received, Ofgem intends to publish a statutory consultation in July 2023.

Overview of the consultation

Issues such as customer dissatisfaction in complaint handling, and difficulty for customers contacting suppliers, have resulted in poor customer-service performance data within the supplier industry. Ofgem states that this is underpinning its proposal to develop a number of new standards to address two key priorities by Winter 23/24, improving:

1. the ease of contacting suppliers, and
2. support by suppliers to customers who are struggling with bills.

Ofgem is seeking feedback on the extent to which it should implement new standards in a prescriptive or principles-based way and on whether it should implement the standards by modifying suppliers’ licence conditions.

Proposals to enhance customer service standards for Winter 23/24

The proposed revised standards and method of implementation are summarised below.

Contact Ease - Concerns have been raised that it is becoming increasingly difficult for customers to contact suppliers. In recognition of poor performance indicators, the consultation proposes that enhanced standards are created specifically to address the limited methods of contact currently available for customers in vulnerable situations. A number of options are being consulted on, including increased monitoring of methods of contact, and providing enhanced methods of contact for vulnerable customers. Ofgem propose that the finalised enhanced standards are enforced by way of refining or amending existing SLCs dealing with contact ease for gas and electricity suppliers.

Debt Support - Ofgem are consulting on the introduction of new rules which propose to require a supplier to make an early offer of default payment plans for struggling consumers, and preventing suppliers from requiring a minimum repayment.

Reputational incentives - In order to promote transparency to consumers surrounding the sources of customer-service related data, Ofgem propose the introduction of a new rule to require suppliers to display customer service data from a specified third-party organisation such as Citizens Advice prominently on their website. Ofgem propose that they will engage with Citizens Advice and other stakeholders in the development of this requirement.

The Overarching Framework

Ofgem propose that in addition to the specific standards created to address the two priority areas outlined above, an overarching framework that sets out how Ofgem regulates to raise consumer standards should be established.

A number of considerations regarding the design of the framework are outlined within the Consultation including:

The balance of rule-based and principle-based standards:

The degree to which the proposed framework will regulate customer service is considered, with a number of rule types suggested. The Consultation will consider whether standards should be universally applied to consumers, or ‘two-tiered’ to include enhanced standards for specific customer types. The appropriate combination of voluntary and mandatory standards, and principle-based and rule-based regulations will also be consulted on.

Standards designed to deliver positive outcomes for consumers:

There is an indication of a preference towards mandatory new or enhanced standards specifically designed to deliver ‘positive outcomes’ for customers, particularly regarding enhanced protections for vulnerable customers.

Test and trial broader use of incentives/deterrents to deliver good performance:

Particularly interesting proposals include those in relation to the use of reputational, regulatory, and financial incentives and deterrents to control customer service standards. Ofgem considered that as the interest of consumers is paramount, any regulatory incentive regarding relaxation of reporting would be limited.  For reputational incentives, Ofgem proposes that while a Supplier Performance Report is already published on the Ofgem website (highlighting specific circumstances of supplier non-compliance with obligations under various government schemes), a ‘league table’ of supplier customer satisfaction could be produced, or requirements for suppliers to publish customer service metrics created. Significantly, financial deterrents could be implemented. Ofgem reference the learnings from the use of the BMCS scheme within the RIIO price controls framework (read more here) to incentivise gas and electricity distribution network companies regarding service standards.

Further detail on early view options that Ofgem may consider with regard to the ‘three category’ strategy can be found from paragraph 3.34 to 3.40 within the Consultation (found here).

Comments and next steps

With a key goal of the consultation being to enhance protection of vulnerable customers, the standards proposed to be created under the consultation are potential methods to address weaknesses that exist in supply industry customer service despite existing governance through SLCs. The specific proposed solutions, alongside the overarching framework discussed above, have the potential to be rule intensive, removing a degree of competitivity within the customer service market. This reform should not be evaluated in isolation – Ofgem are currently undertaking a number of proposed policy reforms surrounding requiring suppliers to hold a minimum amount of capital, supplier ringfencing of renewable energy ‘Renewable Obligations’ funds, and the reinforcement of rules on how domestic providers can use customer balances. Coupled with previous interventions such as the energy price cap, these reforms do seem to signal a move from a supplier market driven by competition, towards one that is highly regulated.

How all this would work alongside the draft ‘Strategy and Policy Statement for Energy Policy in Great Britain’ (found here) is yet to be seen, in which DESNZ state that “effective competition is the best guarantee of consumer protection in the long term”.

Ofgem requires responses to be submitted by 31 May 2023. It will then consider the evidence received, and depending on its assessment of the evidence, Ofgem plans to publish a statutory consultation in July 2023. Within this, the licence condition changes required to deliver changes in the priority customer service issues identified, and Ofgem’s proposition to progress the consumer standards framework will be outlined.