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Ofgem’s Non-DD Penalty Under Fire

Ofgem – making a positive difference for customers (as long as you pay by direct debit)

Ofgem aren’t having an auspicious time at the moment, under fire for their proposal for a unilateral code in the business energy market that allows suppliers to continue to miss-sell, belatedly fining BGB £5.6m for repeated misdemeanours over half a decade, accused of setting up an open goal for National Grid to make excessive profits and now, claiming that customers who don’t or can’t pay by direct debit for their energy bills deserved to be ‘fined’ £80 for failing to do so.

“Ofgem – making a positive difference for customers”

That’s their latest strapline invention. How this latest boob tallies is utterly unclear.

To be fair, their error, as many have been, was borne out of trying to overcome poor supplier behaviour but characteristically in doing so, Ofgem have again failed to understand the commercial models of those companies they are supposed to be regulating.

In fining Scottish Power £750,000 for levying what it deemed an excessive premium of £180 for non direct debit customers, Ofgem has claimed that they:

“Found no evidence to suggest that costs are being unjustifiably added to the bills of typical prepayment and standard credit customers [for non-direct debit payment]”.

Ofgem suggested that the average premium of around £80 was justified by the higher costs the suppliers’ incurred in managing a non-direct debit account.

Robert Halfon, MP for Harlow criticised Ofgem saying:

“[They] need to stop acting like company secretaries and auditors and actually be on the side of the consumer.

“To say that charging £80-odd is the cost of sending people’s bills is complete nonsense.

“People should be able to choose how they want to pay without being ripped off. There is no justification that people should have to pay £80 a year if they don’t pay by direct debit.

He added:

“What mystifies me is that Ofgem have now decided to back off and are not going to look properly into what other companies are doing,”

In response, and in character, Ofgem bizarrely justified their enshrining of this anomaly by firstly admitting the policy was likeliest to hit:

“Low income customers and those in vulnerable situations”

And then claiming the policy would:

“Create winners and losers”

Ofgem then went on to change their mind, saying that a large, though unspecified, number of ‘fuel poor’ customers did actually choose to pay by direct debit after all.

As a result Ofgem refused to change their stance, as doing so would mean those that did use direct debit would be forced to shoulder the costs for those who paid by other means. As a result Ofgem were not willing to act further.

The argument falls down completely of course when you consider how Ofgem were incorrect in initially concluding that they had:

“Found no evidence to suggest that costs are being unjustifiably added to the bills of typical prepayment and standard credit customers [for non-direct debit payment]”.

Rachel Fletcher, Senior Partner for Markets at Ofgem said:

“We have found that price differences between payment methods reflect the costs suppliers face, and that they have dropped significantly since Ofgem introduced the rules.

“However, to help re-build trust suppliers must do more to explain to their customers and interested stakeholders about what drives these price differences.

“Given public concern over these differences we also urge suppliers to also look at how they can provide more reassurance to consumers that they are set fairly.

“And now that our reforms are in place giving consumers clearer information on bills and other communications, suppliers should be working to explain where consumers could make savings by switching payment method, where possible.”

By not acting on a clear example of unnecessary profiteering on consumers, Ofgem have confused themselves completely and again let down the consumers they are supposed to be protecting.

Incidentally Ofgem’s other ‘brand values’ are:

  • Simpler choices
  • Clearer information
  • Fairer treatment

Perhaps someone at Ofgem should introduce the PR and Marketing department to the day-to-day staff because something doesn’t add up, not least the non-DD penalty.

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