Ofgem (TPI) Working Group Nov-14

The Ofgem Third party intermediary (TPI) working group met for their 3^rd session on the 7^th November 2014.

The session brought further clarity to the future arrangements for a TPI “code”, however it was disappointing to hear that this is the final gathering of the grouping despite significant issues yet to be resolved.

Below we summarise the key ‘outcomes’ to date. No formal decision has been taken by Ofgem and the consultation continues outside of the working group however we are pleased to see that the discussions are continuing to proceed along broadly rational and auditable lines and that crucial parallels are being drawn with existing supplier arrangements.

We are less confident about the unwarranted scope creep (14 day cooling off period, supplier modification rights, commission uniformity) and the premature conclusion of the working group

Objective:

To raise the overall standard of TPI service to customers

Method:

A mandatory code of practice for anyone acting as a TPI, backed by a supplier licence condition

The principle:

Ofgem:

“A Code of practice underpinned by a licence condition on suppliers to work only with 
TPIs accredited to this code and governed by an independent board “

• The code will be a mix of “principles” and “rules”, with complaint handling being subject to defined rules but principle led regulation elsewhere.
• Supplier licence obligations focus on micro business – Ofgem to consider whether the Code should mirror this
• Central Administration Function (CAF) to administer the Code and TPI participation within it

TPI definition:

Ofgem:

“Our objective is for the code of practice to apply to any organisation that non-domestic consumers rely upon for information and advice for meeting their energy needs”

Current definition options are:

• “a non-domestic TPI is an intermediary engaged in direct or indirect activities between a non-domestic consumer and an active energy supplier”.
• “an intermediary between a non-domestic consumer and an energy supplier, providing advice and assistance to the customer in relation to their energy needs”.
• “A TPI engages in
(a) giving advice, information or assistance in relation to contracts for the supply of electricity [and gas*] to persons who are or may become customers under such contracts, and (b) providing any other services to such persons in connection with such contracts.”

* Ofgem confirmed that though definition 3 solely focussed on electricity customers, the final Code would also cover the gas market.

Definition application:

Questions include:

• Should the definition only apply where the TPI does not have a direct contract with the customer?
• The broadened definition (3) had led Ofgem to underline that the activities within the scope of the code would be limited to “energy purchase transactions”

Reporting:

• Regular provision of information to CAF on “meters gained”
• TPI level reports
• Complaints by volume (meters signed) 
index by TPI e.g. 10 complaints with 
100 meters = 10%
• [Escalated complaints by TPI by 
category, status (e.g. open, closed)]
• Breaches by TPI by category, status 
(e.g. open, closed) and associated sanctions
• Quarterly reports
• Meters signed
• Date contract signed
• Winning supplier
• Monthly reports
• Complaints (about purchasing)
• Complaint date
• Category
• Stage in internal escalation
• Resolved Y/N & date
• Associated breach Y/N

Concerns:

• Necessity of regular reporting if the TPI has done nothing wrong.
• Cost implications
• Probable cost of the suggested reporting requirements was unjustified.

Standards of Conduct:

• Must not sell a product or service the customer does not fully understand or that is inappropriate for their needs or circumstances
• Must not change anything material about a customer’s product or service without clearly explaining why
• Must not prevent a customer switching product or supplier without good reason e.g. by offering a restricted view of the market
• Must not offer unnecessarily complex or confusing
• Must make it easy for customers to contact and act promptly to put things right after a mistake

Business Protection from Misleading Marketing Regulations:

2.6 A trader is guilty of an offence if he engages in advertising which is misleading:

• Characteristics e.g. fitness for purpose, comparison with others
• The price or manner the price is calculated
• The nature, attributes and rights of the advertiser (including identity)

Transparency:

• Provision of principle statement of terms before contract entry
• A written statement of principle terms sent to customer before contract agreed
• Basis of remuneration
• Breadth of market search

Commission:

• More consideration could be given to differing levels of commission from different suppliers.
• Option to charge a single fee for services
• Greater consideration needs be given to commission and fee transparency.

Concerns:

• Prohibited by suppliers from doing so

Accreditation:

Options discussed included:

• Any party to whom prices are given should be accredited
• Nobody should be refused accreditation at the first instance.
• Ofgem clarified that giving prices to non-accredited TPIs through any channel would be a breach of the licence condition.

Equivalence:

It was confirmed that the Code would seek to place an equivalence of requirements on both TPIs and suppliers.

This is good news as if this objective is carried forward it will mean that a business can access and enter the energy market knowing that there is not a ‘two-tier’ set of standards in operation.

Regulatory framework:

• Ofgem will have ultimate oversight for the content of the code and will define the initial 
content of the code and agree any changes,
• An independent board overseeing the ongoing day-to-day management of the code, 
including, amongst other things monitoring of code compliance,
• Ofgem will develop and consult on proposals for the accreditation process, approach to 
non-compliance, monitoring and funding and will reflect the final arrangements in the 
drafting of the code,
• The responsibility of individual suppliers will be to confirm that a TPI they work with is 
accredited under the code.

Impact assessment:

Ofgem:

“We are currently of the view that our proposals will add value across the entire non- domestic market and, based on current information, will not undermine the competitive I&C segment of the market”

Complaints:

• To be defined as ‘any expression of dissatisfaction’ or those in writing and about the TPI specifically.

• Complaints should* be tiered in bandings such as:
• Marketing Nuisance calls 
/ Misleading advertising / sales pitches
• Misleading claims –during the sales process
• Remuneration – transparency of the remuneration of TPI.
• Execution of contracts – unclear focus
• Renewals – unclear focus

*Complaints against suppliers are published without any assessment of legitimacy and without any reference to scale

• The reporting of complaints is intended to mirror the approach adopted by the Energy Ombudsman with regards supplier complaints.
• Complaints policy to be ‘advertised’ on all customer communications
• Issues should be raised with the TPI in the first instance.
• The underlying complaints processes of a TPI should be visible and resolved in justifiable timescales (TPI dependent)
• Complaints could go to CAF if they remain unresolved mirroring arrangements between suppliers and the Ombudsman. This periods is 8 weeks for suppliers
• Post-sales complaints to be the remit of the suppliers, not TPIs
• Complaints resolution should be paid for by the TPI receiving the complaints, mirroring the arrangement between suppliers and the Ombudsman.

Breaches:

• Complaints and breaches are different
• There doesn’t need to be a complaint to investigate a breach
• The code panel would categorise a breach as either minor or major
• The key principle should be ‘if there is a breach, there is a sanction’
• Publication of investigation to be shown on Ofgem website

Audits:

• Compliance with the code should be determined by audit.
• Audits should only be public if breach of code found
• Compliance issues should only be public if the TPI is suspended or disqualified from the code

Concerns:

• Risk exists around public announcement of investigation would prevent TPI continuing business even where unproven
• Risks to a TPI’s business higher than a suppliers
• Making TPIs pay for triggered audits is effectively the same as a fine given that the cost will still be incurred by the TPI even if no compliance issues are found

Sanctions:

• A written warning
• Fines
• Suspension from the code.
• Increased frequency of audit
• Expulsion from the code.
• Closure of investigation including outcome, reasons and sanction to be published on Ofgem website

Appeals

• The Board’s decisions around sanctions could automatically be appealed,
• An arbitration process was suggested as a backup in cases of disagreement.

Modifications

• Potential to be unduly onerous on smaller TPIs
• Current industry code modification process would be inappropriate
• Modification challenges and right to appeal code mods to be considered

Code administration

• The independence of the code board will be key
• Requirement to be as small as possible whilst including the expertise and representation required

Code board construct options:

• Members of the existing TPI Working Group meeting on an adhoc basis
• Something similar to the Working Group sitting as a low-cost Board, containing representation from TPIs of different sizes or business models as well as supplier and consumer representation.
• An independent Board, not consisting of active industry participants.
• A small number of industry participants, a representative from the CAF and an independent chair or chair supplied by Ofgem.
• Board’s role could be ultimately to make recommendations to Ofgem in order to ensure independence.

Concerns:

• Most supplier representatives did not want to be parties to the code,
• Though some expressed a desire to be able to influence and contribute to the code

Costs:

• Costs are estimated at between £250,000 – £500,000 to set up the code and then a similar amount in ongoing annual costs.
• The CAF could self-finance set-up costs and recover these costs over time through membership fees.
• Some suppliers were happy to contribute to the set-up funding of the code, but only if the funding required was reasonable.

Concerns:

• Any questions around funding are difficult to answer without knowing the likely set-up and running costs.

New proposals:

• 14 day cooling off period for all sales through a TPI
• Cancellation of mis-sold contracts without penalty
• Transparency about how much of the market searched by a TPI
• Differing levels of accreditation for those that search the whole market and those that only search a selected number of suppliers

Timescales:

• It was estimated that the Code may take around 6 months to set-up but that a lot of time may be spent reaching all TPIs that need to be accredited.

Next steps:

• Ofgem stated that the next milestone will be a consultation on the Code and the Licence Condition underpinning the code in Q1 2015.
• Ofgem will be continuing to engage with stakeholders
• No further Working Group meetings currently planned

Links

• Business Juice’s responses to the latest market consultations
• Business Juice’s customer charter
• A sample of Business Juice’s unique key facts documentmade available to all our customers

Note:

Business Juice was asked to be members of this grouping given our success in lobbying for market improvements such as the ending of rollover contracts amongst the Big 6 energy suppliers and our work with the Number 10 Downing Street SME Energy Working Group.

This invitation however was declined as we felt that whilst we support much of the group’s intentions, little value would be garnered from the sessions and that our priority as a business must continue to be to lead the market by example and not engage in a long drawn out discussions in lieu of action.

We however remain available for Ofgem and the grouping itself for ‘thought pieces’ and advice and remain focused on ensuring that the ultimate beneficiary of the proposed code is a fairer competitive market for business energy customers. If that is indeed the outcome we will wholeheartedly support the decisions reached.