Ofgem consultation on proposed changes to enforcement procedure: What are the implications for energy suppliers?

Ofgem’s consultation on proposed changes to its enforcement procedure closed for responses on August 4^th. We take a look at the planned changes announced and what impacts they could have on UK energy suppliers.

Why the need for such a Consultation?

The main changes proposed

The main changes proposed by Ofgem in the Consultation cover the settlement process for Sectoral cases. These are cases when enforcement action is taken against a regulated supplier/persons for breaches of a licence condition or requirement under the Electricity Act 1989 or Gas Act 1986. These acts are not part of Ofgem’s consumer or competition law remit.

Under the current guidelines, an investigated business has to voluntarily admit to the breach which results in a formal finding of a breach. The business must then agree not to challenge or appeal to Ofgem’s finding or resultant penalty or order.

Currently, there are three settlement windows, these are: early, middle, and late. Depending on where on the scale a business agrees to make a settlement there are discounts offered to the non-compliant business.

Under the consultation proposals, Ofgem wants to remove the middle and late settlement windows and keep just the one settlement window at a 30% discount. Ofgem believes that doing so will reduce what it calls a lengthy and resource-intensive process.

Energy suppliers will have a ‘reasonable’ period (28 days is likely) to make the payment after being issued with a penalty notice or redress order. By slashing the time suppliers will have to make payments for infractions, Ofgem hopes they will be incentivising businesses to settle and slash the time it takes to resolve a case.

Ofgem also made proposals to change the decision-making process for settlements. Currently, settlement decisions are made by a Settlement Committee comprised of an Ofgem Director and two members of the Enforcement Decision Panel who are independent of Ofgem’s investigation teams.

Under the proposals, Ofgem is considering whether to make the Ofgem Director responsible for enforcement to be the decision-maker for all settlement cases with the committee used as an alternative where their opinions may offer a benefit. Ofgem believes such a change will address industry concerns over the process.

Also read: Ofgem and BEIS launch Consultation on how to overhaul the ‘overly complex’ UK energy code governance framework

Changes to financial penalties 

Ofgem also wants to simplify several elements in the process it uses to calculate financial penalties and consumer redress orders. Under the current rules, two factors are considered.

These are:

• The gains made by the contravening entity and the detriment suffered by consumers as a result of a breach.
• The seriousness of the breach and any mitigating or aggravating factors.

Under the proposals, these will be replaced by:

• The seriousness of a contravention
• The impact of the licensees’ behaviours such as whether the contravention harms the interests of consumers or other market participants.
• How necessary the penalty is to deter future contraventions?

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Further Reading

How should Energy Suppliers explain Energy Bill Increases?

British Gas, E.ON, EDF and Scottish Power call for a Social Tariff to help customers with soaring gas bills and rising energy price cap

Energy Price Cap could rise £150 hints Ofgem chief

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