Ofgem enforces new Standards of Conduct for energy suppliers

The first stage of Ofgem’s energy market reforms has kicked in, forcing energy suppliers to get back to basics and treat customers fairly.

The energy regulator, Ofgem, has now implemented phase-one of its energy market reforms.

In what it has described as the "most radical shake-up of the retail energy market since competition began", Ofgem has come up with new ways to make the murky world of energy "simpler, clearer and fairer" for the likes of you and me.

But it's a massive overhaul, so can't happen overnight. Instead the process is being staggered so energy companies have the time to make the necessary changes.

The first stage of the plan involves making the energy market fairer. This means from now on energy suppliers must abide by new Standards of Conduct, which will be backed up by fines.

The new code

The Standards of Conduct centre on treating customers fairly and cover three areas; behaviour, information and process.

In terms of behaviour, suppliers must ensure they carry out actions in a “fair, honest, transparent, appropriate and professional manner” at all times.

When it comes to providing information to customers - either in writing or verbally - energy companies must ensure they are complete and accurate so as to not mislead, but also use jargon-free, easy to understand language. The information must also be relevant to the customer and the most important details given greater prominence.

Finally suppliers must amend their processes in areas like customer service so that they are “complete, thorough, fit for purpose and transparent”. Energy companies must make it easy for customers to contact them and act fast if they make a mistake.

The new rules apply to energy suppliers, as well as any organisation that represents them including brokers and third party intermediaries.

To you and me these initial reforms may seem pretty basic, but Ofgem said it would force suppliers to go through a "culture change" in the way they treat customers.

Enforceable rules

In order to ensure energy companies are complying with the new code of conduct, they will have to publish reports each year that set out exactly what they are doing to treat energy customers fairly.

If an energy company breaches any of the new rules they will be investigated and could face a financial penalty from the regulator.

Ofgem has the power to levy a fine of up to 10% on a supplier’s annual turnover. However, Ofgem has yet to issue a fine anywhere near this limit.

One of the biggest was dished out to Scottish & Southern Energy (SSE) totalling £10.5 million back in April for mis-selling gas and electricity over the phone, in-store and on doorsteps.

So the onus is on suppliers to deliver fair treatment at every level of their organisation or pay the consequences.

Energy reform timeline

It's a pretty depressing state of affairs that our energy companies are having to be schooled in how to run their operations, but going back to basics is how Ofgem has decided to deal with the task it was set of reforming and restoring trust in the energy market.

The energy market reforms involve some pretty complex changes to do with energy suppliers’ licences so an overhaul will take time, but the wheels have been put in motion this week and clearer deadlines set out for when energy companies will have to comply with the rest of the reforms.

The next stages of Ofgem’s plans have numerous deadlines, which provided no appeals are made by energy firms, should all take effect by June 2014.

Here is a timeline of the changes suppliers will have to make or abide by over the coming months:

22nd October 2013

Suppliers will be banned from increasing prices on fixed term deals or making other changes to fixed term tariffs as well as rolling over fixed term contracts without a customer’s permission.

Customers will be given a 42- to 49-day window before the end of their contract to decide if they want to stay or switch.

31st December 2013

Energy suppliers will only be able to offer four core tariffs per fuel, but dual fuel and online account management discounts can be offered on each of the four deals. All of these must have a standing charge - which can be set at zero - and a single unit rate.

31st March 2014

Suppliers will have to give customers personalised information on the cheapest tariff available to them, which will appear on their bills and other communications.

All communications must be presented in a simplified, engaging and personalised way.

A new Tariff Comparison Rate (TCR) will be used to help customers compare energy deals ‘like for like’ along with a new Tariff Information Label, which will set out the key terms and conditions of a deal.

30th June 2014

Energy customers on expensive ‘dead tariffs’ – deals which are no longer advertised - must be transferred onto the cheapest variable rate. Suppliers will only be able to keep customers on ‘dead tariffs’ if they are cheaper than or as cheap as the supplier’s cheapest standard deal.

'Big six' reactions

Of the ‘big six’ energy companies, E.ON, SSE and npower were the most vocal about their commitment to the first stage of the reforms, with these three boasting that they were way ahead of schedule for the overhaul.

E.ON said it had already set up clearer information (a one sheet bill) simpler products and an easy way to check and choose the best deal. It added that it was working on a Trust Programme to make sure its new commitments weren’t just words on a page but at the heart of everything it does.

Meanwhile npower said that it "strongly" welcomed the new Standards of Conduct and pledged that it was "absolutely committed" to treating customers fairly. It added the firm had already moved away from two-tier tariffs, created a simple and clear new bill and reduced the number of tariffs on offer, giving the company a head start on the reforms that are yet to be enforced. Read more about this in npower cutting down to just four energy tariffs.

SSE also said it was ahead of the game. In a statement the firm boasted: “We haven’t been sitting back waiting for the regulator to tell us what to do, we have been working hard over the last two years to make our own improvements. We have led the energy industry with initiatives like the end to doorstep sales, simplification of our tariffs, our no-loss sales guarantee and a customer charter and service guarantee, whereby if we fail to meet a number of service promises we give the customer money back."

Elephant in the room

The vast majority of energy companies have started to make changes to comply with the reforms and some like npower, SSE and E.ON are keen to make sure everyone knows about it.

But while the reforms may revolutionise the energy market by making the area more transparent and easy to understand, it won’t help keep energy prices down.

The rising cost of energy bills has meant household budgets have been squeezed. According to Ofgem, over the past three years the average dual fuel bill has gone up by nearly 30% to £1,420.

If you think you are paying too much for your energy, you may be better off switching onto a new deal. You can compare the whole gas and electricity market through our energy quote engine. But here I’ve listed the five cheapest deals around at the moment.

 Source: energyhelpline

* Saving calculated against an average bill as declared by OFGEM, 2013 (£1,420)

All calculations are for an average usage dual fuel household paying by monthly direct debit. Average usage as defined by OFGEM is 16,500 kWh pa of gas and 3,300 kWh pa of electricity

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