Objecting in the Domestic Market – Powergen Response
Overview
Ofgem’s proposals fall into two parts:
a)cooperative objections and objections at the customer’s request
We welcome these proposals, which will benefit both customers and suppliers by avoiding unnecessary transfer and retransfer activity. Our comments below are on the operational details.
b)removing the potential use of a termination notice requirement as a contract feature
Whilst we support the objective of preventing obstructive use of termination notices, we believe this can be achieved by enforcement of the Unfair Contract Terms Regulations without losing the benefit of innovative products dependent on termination notice. Our comments below expand on these issues.
The proposals also raise questions of process, both in how gas and electricity are progressed in parallel, and how the industry best develops complex proposals such as this. We comment below on how the MRA change control process might be used to finalise the proposals, before Ofgem seek amendment to the Gas Licence.
Cooperative objections and objections at the customer’s request
The benefits of Ofgem’s proposals are substantial:
Fewer erroneous transfers;
Less inconvenience to customers (eg. as direct debit arrangements are terminated);
Less cost to suppliers from erroneous transfers and transfer followed by reregistration;
Clarity over potential save and winback activity – and hence opportunity for effective regulation (or self-regulation)
Customers and suppliers better informed eg. the reason for an objection
We therefore support Ofgem’s proposals in principle, but note that there can be disadvantages due to the losing supplier having the last contact with the customer:
a)Mistaken (or fraudulent) objection
b)If the losing supplier’s agent misinforms the customer
c)If the customer is reluctant to say ‘no’ to anyone
d)The customer cannot reflect on information received before requesting an objection, as there is no “cancellation period”
In addition, Ofgem’s detailed proposals are in some respects unworkable:
Taping calls and retaining them for twelve months is costly. It is more practical for a specialist (primarily outbound) team, but customer contact will often be by customer service agents (most likely inbound calls);
Written confirmation is not a viable alternative. It is too formal, given industry practice. Experience from the PPM trial suggests the response rate may only be 5-10%.
The Objections Working Group are developing a practical solution to these issues whereby the new supplier can resubmit a registration, the old supplier is alerted to this and will not contact the customer or object to the transfer. The current proposal is only to apply this if the new supplier considers the old supplier’s objection to prevent an erroneous transfer was in error, but the process could also be applied to objections on customer request as a means of tackling the issues (a) – (d) raised above. The new supplier would need to retain its own audit trail.
These details should be developed through standard industry processes – the MRA and DCOP or SPAA. The remit of the Objections Working Group should be extended to cover development of proposals to implement all objections processes. To avoid prejudicing such developments we recommend the statement in the proposed Clause 10(a) that “…for at least 12 months” is dropped.
Removing the potential for objection to a transfer as a contract feature
Powergen uses, or plans to use, the termination notice provision to offer customers innovative products:
Our capped price product requires the customer to call us before leaving. This contact allows us to reaffirm the benefits of the offering and hence ensures customers are fully informed before switching. We consider a ‘call us’ requirement to be simpler and better value than other capped price products in the market eg. which have a termination fee or an additional premium with a loyalty tie-in.
An example energy efficiency proposal would be to finance cavity wall insulation through an interest free loan of a few hundred pounds repaid over one or two years. Linking the loan to a supply contract makes for a more attractive offer than using a finance house (eg. single bill, no signature) as well as reducing costs. The risks of such an offer are reduced if the customer has to clear the loan before changing supplier.
Such offers can only be made using the termination notice provision in the Gas Licence and MRA – and customers should decide whether or not they succeed in the market.
We support Ofgem’s objective of eliminating poor termination notice practices, but it is unnecessary ‘to throw the baby out with the bath water.’
We recommend Ofgem use their powers under Unfair Contract Terms Regulations to tackle abuses, for instance the examples cited in the consultation would seem to breach the prohibition of undue formality.
It would also be a welcome development in regulation to apply standard consumer legislation in preference to specific provisions in energy Licences.
However, if these powers prove to be insufficient we would support an amendment to the Gas Licence and to the MRA which restricted objections for domestic customers on grounds of lack of termination notice to contracts in a fixed term period (ie. a price guarantee of more than 12 months) or if ‘reasonable security has not been provided’ for the provision of other goods and services relating to energy efficiency.
Consultation Process
The standard Licence consultation process does not allow for multiple, linked changes to a Licence, or for parties to develop proposals to build consensus. The MRA change control process is more flexible. SPAA will provide an equivalent process in gas.
We recommend:
The proposed seminar is held as soon as possible, to discuss the findings of this consultation and to prepare a draft MRA change.
A proposal for change is put to the MRA. Powergen is happy to do this if the proposed change is on the lines outlined above.
The MRA change control process, in conjunction with the Objections Working Group, settles the overall package – both the policy change and the operational procedures.
The policy change is then put forward for gas as a Licence change. The operational procedures would be implemented through DCOP or SPAA.
Summary
The proposed changes to the objections rules are far reaching and must look beyond issues which occurred at market opening. The proposed seminar is an important step to building consensus, but the subsequent process must also allow for development of the proposals. The MRA change control process should be used before a final proposal is put to a vote as an amendment to the Gas Licence.
The proposals for cooperative objections and objections at a customer’s request are excellent in principle, but additional detail is required on the supporting processes.
Removing the potential for objection on the basis of lack of termination notice will reduce the range of offers available to customers and is unnecessary. Ofgem should seek to use their powers under the Unfair Contract Terms Regulations to tackle any abuses.
Graham Kirby
Competition & Regulation Manager
Powergen Retail
12 November 2002