LE Group - Objecting in the Domestic Market

03 May 2002

15 November 2002 Our Ref: Ofgem/ODM/LEG/15112002

Direct line: 020 7331 3563

Local fax: 020 7331 3658

Joanne Taylor

Special Projects Manager

Office of Gas and Electricity Markets

9 Millbank

LONDON

SW1P 3GE

Dear Joanne,

Subject: Objecting in the Domestic Market

Thank you for providing LE Group with the opportunity to comment on your proposals for amending the rules that permit suppliers to object to customer transfers in the domestic market. This response is made on behalf of the LE Group, which encompasses the following energy retail brands: London Electricity, SWEB, SEEBOARD Energy and Virgin HomeEnergy.

I can also confirm that our response can be treated as non-confidential and may therefore be placed on your website.

As you know, LE Group is represented on the various forums and working groups at which issues such as these are discussed and our approach throughout such discussions has been driven by a desire to improve and enhance the customer’s experience of the transfer process wherever possible, whilst seeking to ensure that a level playing field is created between all suppliers. We therefore welcome the opportunity to contribute our ideas and suggestions to this review in a positive and constructive manner.

Our response is divided into three sections. The first section of our response sets out what we believe should be the key principles, aims and objectives underpinning any reform to the rules governing objections. In our opinion, this should provide an important test/checklist against any proposed changes and enable Ofgem and suppliers to perform a considered evaluation of how any such changes are likely to benefit the customer's experience of the transfer process and help to assess both the operational as well as competitive effect on suppliers engaged in winning and losing customers.

The second section of our response summarises our position on the key proposals and issues raised in Ofgem’s letter. The third section of our response provides more detailed comments on Ofgem’s proposed amendments to the objection procedures and on how they might be operated. Finally, we give our views on the merits of Ofgem holding a seminar.

Section 1 - Key Principles and Objectives

As already mentioned, we believe that it is important to evaluate any proposed amendments against a common set of principles and objectives. In our opinion, any amendments to the current rules governing objections should be evaluated against the following set of key principles and objectives, i.e. any changes should:

• Enhance the customer's perception and experience of the transfer process by giving them greater choice and control in their decision to either switch away from or remain with their existing supplier;

• Not shift the focus and attention away from the steps being taken by the industry to clean up energy mis-selling, and starting with the roll out of 100% accreditation of field sales representatives. In respect of the four brands of LE Group, we have adopted 100% verification of energy contracts prior to registering them. Such a move, if adopted by all suppliers, would considerably reduce the need for a “customer requested” objection facility;

• Positively contribute towards a reduction in the current level of erroneous transfers and associated customer complaints;

• Not prevent or frustrate those customers genuinely wishing to transfer by encouraging unjustified efforts to prevent legitimate acquisitions;

• Operate on the basis that the supplier with whom the customer elects to contract regarding their supply is able to act speedily and effectively in accordance with the customer’s genuine wishes and that where co-operation between suppliers is needed then this is provided ;

• From an industry sense check and perhaps more importantly from an end-to-end customer experience perspective, involve a careful review of the purpose, validity, content and frequency of those supplier-to-supplier communications and supplier-to-customer contacts and communications associated with validating sales, confirming losses, objecting to transfers and responding to erroneous transfers performed by gaining and losing suppliers;

• Apply equally to both fuels with parallel modifications made to ensure harmonisation and consistency within the industry – this principle also needs to apply to rules governing objections in the industrial and commercial market. We would therefore ask Ofgem to clarify its position on this issue, particularly as it has remain unresolved for a considerable time.

Section 2 – Summary of LE Group’s Comments on Specific Proposals

LE Group’s overall position on Ofgem’s key proposals can be summarised as follows:-

• We support the amendment which would, if accepted, prevent all domestic suppliers from raising an objection where they have not received a termination notice.

• We support the concept of a co-operative objection being raised/used by the existing supplier when it has become clear that a proposed transfer has been initiated in error.

• We believe that there is merit in the concept of a “customer requested objection” and, whilst such a facility does not in any way tackle the root cause of invalid registrations, we share Ofgem’s view that it could help to stop a number of erroneous transfers before they occur and in turn help to improve customers’ confidence in and experience of the customer transfer process.

• We would not want to see any proposals developed in isolation and rushed through without proper consideration of other potentially overlapping selling/customer transfer initiatives such as those being developed through EnergySure, the Industry Code of Practice and the Erroneous Transfer Customer Charter.

• In terms of reviewing possible implementation timescales associated with the proposed amendments, these would need to take into account possible changes to systems, procedures, customer communications and staff training.

• Finally, we believe that it would be worthwhile Ofgem holding a seminar to further consider the proposed licence modification and related customer and operational issues in advance of the formal consultation.

Section 3 – LE Group’s Detailed Comments on Ofgem’s Specific Proposals

Proposal 1- To remove a domestic gas supplier’s right to object on grounds of lack of contract termination notice

LE Group, which encompasses the retail brands of London Electricity, SWEB, SEEBOARD Energy and Virgin HomeEnergy, gave its support to the Termination Notice Trial which commenced in October 1999. Since its inception, LE Group has operated within the terms and spirit of the trial. However, our ongoing commitment to this initiative was given on the assumption that all domestic suppliers would agree not to object on grounds of lack of termination notice.

As a result, LE Group is happy to support this change on the basis that we believe it will help to:-

-remove a costly and administrative burden from the transfer process, particularly when applied to non-contentious 28 day notice type contracts;

-ensure a consistent approach for all customers wishing to transfer between suppliers as well as reduce objection rates, acquisition costs and transfer timescales;

-remove the opportunity to prevent or frustrate legitimate acquisitions from taking place;

-reduce customer transfer complaints within the industry providing that only verified/quality sales are registered;

-improve customers’ overall perception and experience of the transfer process.

Proposal 2 – To include the ability for the new supplier to agree with the old supplier that the proposed transfer has been initiated in error and that a co-operative objection should be made by the old supplier.

LE Group supports the concept of an objection being raised by the old supplier when it has become clear that a proposed transfer has been initiated in error. We believe that a more effective use of such a facility could help to reduce the current level of erroneous transfers and associated customer complaints.

LE Group does attempt to use the co-operative objection process to avoid resorting to the erroneous transfer process, but due to the short objection window and slow/poor responses from a number of suppliers, this has not shown to be very effective.

For such a facility to be truly effective and to ensure that the objection window can be fully utilised, we believe that it would be acceptable to allow the old/existing supplier to object to an expected erroneous transfer but with an appropriate communication to be initiated with the new/acquiring supplier immediately after the objection.

We would therefore expect to see the development of an agreed procedure to support this concept and would be happy to work with other suppliers to formulate such a procedure utilising established industry governance arrangements. Once established, this procedure would help the industry to ensure that customers were allowed to remain with their preferred supplier, whilst giving appropriate protection to new suppliers to prevent the mis-use of such an arrangement.

Proposal 3 – To allow the old supplier to object to a proposed transfer taking place after a request from their customer.

As mentioned in the first half of our response, LE Group fully supports initiatives which are aimed at improving customers’ confidence in and experience of the transfer process.

We believe that all suppliers (existing and acquiring suppliers) should have a duty to accept a customer’s wishes in respect of a proposed transfer. However, we believe that ultimate responsibility for ensuring only verified/confirmed contracts are registered must continue to reside with the acquiring supplier and that the current focus and attention on initiatives which are aimed at introducing best practice to door step selling and the reduction in erroneous transfers should take ultimate priority in this area. In our opinion, key measures such as these should be pursued by all acquiring suppliers if the industry is really serious about stamping out erroneous transfers.

We also believe that there is some merit in the proposal which would allow the existing supplier to object to a proposed transfer taking place after a request from their customer and agree with Ofgem’s view that such a facility, whilst second best and not addressing the root cause of the problem, could help to stop a number of erroneous transfers before they occur. This proposal could also help to strengthen customers’ confidence in and trust of suppliers operating in the competitive energy market. However, we acknowledge that very clear rules would need to be defined covering the circumstances in which such a proposed facility could be used.

We would also expect Ofgem to confirm that the principle of a customer requested objection, which involves one supplier blocking another supplier’s contract, did not raise any competition or legal issues.

In terms of commenting on how such a proposed facility might be operated, we have the following views:

-A customer requested objection should only be raised by the existing supplier at the specific request of the customer.

-The customer’s existing supplier should only be entitled to block a transfer which was clearly known to have been registered either in error by the acquiring supplier or which was proceeding without the customer’s prior knowledge or consent.

-There is a strong justification for allowing a customer who has expressed a clear desire to remain with their existing supplier, but who has been subjected to mis-selling and, as a result, may have already been caught up in an erroneous transfer, to subsequently request their existing supplier to set up a “customer requested” objection. In our opinion, this facility could give customers additional protection and peace of mind over their supply and provide much greater control and certainty over their choice of supplier.

In those circumstances when the customer requested objection is used, we agree with the view that the customer’s existing supplier should be required to:

-record and retain evidence of the customer contact/request for the objection to be raised;

-write out to the customer to confirm that an objection has been raised and why;

-give the customer the choice of having the objection removed at any time and to make this as simple possible;

-inform the other supplier within a pre-defined timescale that a customer requested objection either exists or has been made in respect of the proposed transfer, and;

-set up appropriate and well defined compliance monitoring and reporting arrangements as a pre-condition of such a facility being granted.

In addition to the above requirements, we would also expect to see the establishment of a suitably represented Monitoring and Review Group, under Ofgem’s governance and with support from Gemserv, with a remit to:

-establish whether the customers’ overall experience of the transfer process has been improved by the change and whether the expected improvements as described in Ofgem’s letter are being obtained;

-examine the overall impact on the customer transfer process, which includes reviewing cancellations, objections, erroneous transfers, customer complaints and transfer timescales;

-review both the cost and operational impact on suppliers required to comply with any new arrangements;

-identify potential weaknesses in any new arrangements and recommend possible improvements and solutions for wider consideration and debate.

Ofgem will no doubt want to put in place additional arrangements to monitor any potential changes in suppliers’ acquisition and retention policies and procedures to ensure that any changes in this area are acting in the best interests of customers.

Proposal 4 - Merit in holding a seminar

LE Group believes that there would be merit in Ofgem holding a seminar to further consider the proposed licence modification and related issues in advance of the formal consultation.

Our recent experience of seminars arranged by Ofgem is extremely positive and we have found that a well facilitated seminar with appropriate industry and customer representation can provide an excellent forum for focused and meaningful discussion and debate. In our opinion, this approach can also help to identify, as well as fast-track, workable solutions to potential issues in a way that is not always possible and/or achievable through the normal consultation process. Given our support for this approach, LE Group would keen to attend and actively participate in such a seminar.

Finally, we hope that our response and the comments that we have made can be incorporated into Ofgem’s plans for taking forward the work still needed in this area. LE Group also looks forward to making positive contributions through our continued involvement in the various working groups.

In the meantime, please feel free to contact Jon Beckley on 01273 428524 or by email should you wish to clarify any of the points or suggestions contained within our response.

Yours sincerely

Denis Linford

Group Head of Regulation

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