At the start of this year we reported on the consultation paper "Addressing unfair price differentials" produced by OFGEM as part of its Energy Supply Probe into discriminatory pricing (see our February 2009 E-Bulletin). This consultation paper identified a number of proposals for ensuring unfair pricing to ensure the protection of customers without impeding competition or innovation.

On 23 March 2009, OFGEM issued a further press release outlining a new set of rules for energy suppliers which are intended to give energy customers more power and help to address the flaws identified through the Energy Supply Probe. The proposed regime comprises a code of conduct for energy suppliers to ensure that customers are treated fairly, and a retail remedies package which will address specific issues identified by OFGEM. Alastair Buchanan, Chief Executive of OFGEM, has explained the regulator's thinking behind this two-fold approach:

"Our undue discrimination rule will address the symptom of flaws in the market while our retail market measures will treat the causes" (OFGEM Press Release, 23 March 2009).

OFGEM has already indicated some of the standards which it envisages the new code of conduct will require. These include the following:

  • suppliers should not sell customers products or services which are overly complex or confusing for customers, unsuitable for a particular customer or which the customer does not understand;
  • suppliers should clearly explain any changes to a customer's product or service before these are implemented;
  • suppliers should not impede customers from switching to another supplier without good reason; and
  • suppliers should offer a clear route for customers to contact them and ensure that procedures are in place which make it easy for mistakes to be dealt with promptly and courteously.

A general obligation to treat customers fairly already exists in the financial services sector. The Treating Customers Fairly (TCF) initiative applies to all firms in the retail supply chain for financial products. Rather than adopting a specific set of rules, the FSA has taken a principles-based approach to regulation, and although so far the emphasis has been on self-regulation the FSA expects firms to be able to demonstrate that they have implemented the initiative through their policy, procedures and culture. It is not yet clear whether a similar approach will be adopted in the energy supply market, or whether OFGEM will introduce a more rigid regulatory framework.

OFGEM has also indicated that it is minded to introduce a new supply licence condition to prohibit unfair pricing. This was one of the options identified in the previous consultation paper and once implemented suppliers will have to objectively justify differences in charges to customers and ensure that prices are cost-reflective. This will be complemented by the package of retail remedies which will address particular needs of customers identified during the Probe. These remedies include requirements for suppliers to provide:

  • an annual statement with details of the customer's consumption and a reminder of their ability to change suppliers;
  • simpler pricing information including "at-a-glance" tariff information;
  • written quotations following doorstep sales; and
  • clear and transparent terms and conditions for small businesses.

In addition, suppliers will no longer be able to put customers on a rolling contract when their fixed term arrangements expire. OFGEM's view is that these remedies can also be introduced via new supply licence conditions and will publish a further consultation paper on the proposed supply licence modifications later this month.