Back in February The Times published an exposé into the forced installation of pre-payment meters (“PPMs”) by British Gas among others. The article created a huge scandal, putting British Gas in particular in the cross-hairs of politicians, the media and Ofgem. However, I had some issues with the report and the reaction to it.
First of all, it is not illegal or even wrong for bailiffs to break into homes, even the homes of vulnerable consumers, in order to install pre-payment meters. There are rules around when and how such moves can be made and the Times article did not provide enough background to know if these rules had been followed. For example, installing a pre-payment meter in the home of a vulnerable consumer should be a last resort not a first resort, but there was no evidence either way as to what if any efforts had been made by British Gas prior to seeking a warrant for a forced PPM installation. Ultimately energy is not free, and if any customer, even someone who is vulnerable, consistently fails to pay and fails to engage with their supplier, then they can be forced to pay in advance – no-one suggests security guards in Tesco are wrong for preventing shop-lifting even if the thief is vulnerable. British Gas is now the subject of an Ofgem investigation to determine whether correct procedures were followed.
Secondly, the article exposed real issues with the way in which warrants are signed off. These are apparently done in bulk, based on a sworn statement by the supplier’s agent. In our legal system, we tend not to simply rely on a person’s sworn evidence – if we did, prisons would only contain those who pleaded guilty! Our legal system does not simply take people’s word for it – evidence is tested. Warrants should not be signed off in bulk – forced entry into someone’s home is not something to be taken lightly and the courts should provide the final check and balance, to ensure procedures have been correctly followed and no errors have been made (or shortcuts attempted).
Thirdly, the really egregious behaviour described in the article was that of Arvato, the debt collection company used by British Gas and other suppliers. Its agents were shown taking delight in upsetting people and were indifferent to the circumstances of the people whose homes they were invading. They also showed little respect for their property. But as they are not, unlike British Gas, a household name, the focus of public anger has been on the energy company and not the debt collection business whose behaviour was materially worse. It is the responsibility of suppliers to make sure agents acting on their behalf follow the rules, and there are questions that can usefully be asked as to how this can be achieved, particularly when the issue is largely around attitude and culture.
Since then, the forced installation of pre-payment meters has been suspended, leading to an admission from Ofgem Chief Executive Jonathan Brearley that the bills of customers that do pay their bills may have to rise to cover the losses to suppliers from those that do not. This is unavoidable but also undesirable – energy companies should not be carrying out wealth re-distribution – that is something for the Government, and is why a social tariff with embedded measures around payment delinquency should be introduced.
“If this debt cannot be recovered from some customers, then this increases costs for suppliers. We are aware of the difficult balance here as unrecoverable debts from some customers may then be recovered from the bills of paying customers, many of whom are themselves struggling with paying their bills given the wider affordability issue. We have an ongoing programme of work to assess costs to suppliers from customer debt,”
– Jonathan Brearley, Chief Executive, Ofgem
Meanwhile other suppliers warned that by not installing pre-payment meters, the debts of customers that are not paying their bills will simply keep rising and could become completely unaffordable, which is in itself an ethical problem.
“It’s easy to make bold statements but unless you’re prepared to have a grown up conversation about money then the debate goes nowhere. If these customers aren’t going to pay, who will? Because energy suppliers are already losing money and are people actually going to vote for an increase in their own tariffs to cover the cost of non installation of prepay or an increase in taxes? Or are we just going to let this spiral until it gets to debt collection? My point is, this issue is much wider than nasty, old energy companies. There needs to be a solution. But at the moment all we get is name-calling,”
– Bill Bullen, Chief Executive, Utilita
Since then, Ofgem has announced a number of measures:
- The terms of reference of the urgent investigation into British Gas
- The scope of the in-depth Market Compliance Review into the issue of how PPMs are handled across the market, to include targeted engagement facilitated through consumer groups and the Energy Ombudsman
- A call for all suppliers to use the current pause in PPM installations to proactively check if any have been installed incorrectly and, if so, to consider removing them and offering compensation where appropriate. Ofgem will be checking actions but has made clear that suppliers should not wait to act themselves.
- The launch of urgent work with stakeholders to look at what further protections may be needed within the rules, regulations and guidance around PPMs and seek views on other measures that could reduce the need for PPMs to be installed or switched to remotely, to conclude by the end of March 2023
Interestingly, in its announcement, Ofgem explicitly linked its work on PPMs with wider concerns over affordability and referenced its recent calls for the Government to consider “examining, with urgency, a social tariff that limits the impact of extremely high prices and reduces volatility for a defined set of vulnerable groups”.
Subsequently, the Government has announced that over 94,000 prepayment meters were forcibly installed in homes under warrant last year without customer consent. British Gas, Scottish Power and OVO Energy, were responsible for 70% of all forced installations with a total of 66,187 devices fitted under warrant. Scottish Power was described as the “worst offender when taking into account their customer base” – force fitting over 24,300 PPMs in 2022, although British Gas actually installed more at 25,000.
Last week the story took a dramatic turn when Ofgem decided to try to coerce The Times into handing over all the material it gathered in putting together its article, threatening it with criminal prosecution and unlimited fines if it failed to comply. Ofgem apparently demanded to see the undercover recordings and the journalist’s “personal notes”, and suggested it was a criminal offence not to comply “without reasonable excuse”. The newspaper declined to comply, saying that the information requests “were unlawful attempts to force the compulsory disclosure of journalistic material”.
There was a rapid backlash on social media, with commentators pointing out that Ofgem does not regulate the press and was likely stepping outside its powers with its demands. Energy Secretary Grant Shapps criticised Ofgem saying that it needs to fix the issues uncovered by The Times, and not threaten the journalists who uncovered them. The whole situation being reminiscent of the old adage about the foolishness of picking a fight with people who buy ink by the barrel.
“Ofgem, who are [sic] a regulator, need to fix the problems that were uncovered, not be pursuing, or threatening to pursue journalists who’ve uncovered these things, I would say, that the regulator should have been finding itself. I can be as clear as you like on this. It is wrong for them to be pursuing the journalists. I would be very disappointed to see them progress that through the courts. The journalists are merely doing the job of uncovering something which absolutely should not be going on. I have cracked down very hard on that particular scandal, which was to do with prepayment meters. I expect the regulator to do the same job,”
– Grant Shapps MP, Secretary of State of Energy Security and Net Zero
Ofgem rapidly backtracked, saying it had withdrawn its demands and hoped to engage with the paper on a voluntary basis. Jonathan Brearley wrote to Tony Gallagher, the editor of The Times, saying that his officials “fully respect the laws and principles that protect journalistic integrity, and our intention was never to impinge upon or compromise that freedom”.
The whole episode was quite extraordinary. Citizens Advice has long criticised Ofgem for failing to enforce market rules to the detriment of consumers – arguably, Ofgem and not a newspaper, should have been the one to reveal the problems with forced installations of pre-payment meters. It also could have obtained much of the information it was seeking from The Times from other sources. Clearly, the regulator is feeling the pressure, after facing strong criticism in the past year over its regulation of the retail market, but this was clearly a stupid move.
It’s right that Ofgem should investigate the issues uncovered by The Times, but it needs to do so in a rigorous and professional way, and without pre-judging the outcome. I remain to be convinced that Ofgem is capable of appropriate regulation of the retail energy market, something which is set to become harder as Ofgem’s powers are broadened to include heat networks. I’m not calling for Ofgem to be disbanded – in practice that would be little more than a re-branding exercise since any new regulator would almost certainly be staffed with former Ofgem employees. No, I would prefer for regulation of the retail energy market to be moved to the Financial Conduct Authority, reflecting the fact that energy retail is a virtual businesses which is more concerned with holding customer money than with physical gas and electricity.
Either way, the retail energy market is in dire need of reform, and it seems unlikely that the current regulator has the skills or bandwidth to do anything more than fight fires. Both suppliers and their customers deserve better.
Not a straightforward issue. However, given the substantial recent increase in profitability none of which is the result of increased endeavour by British Gas you might imagine that there is some scope for leniency. At the very least, treat customers with respect and dignity. Although there has been some support with paying the massively increased energy costs let us be mindful also of the substantial effects of inflation generally. Also, many many properties are very inefficient hence expensive to heat even to a modest extent.
The problem is that BG / Centrica is more or less unique in that it has a (currently) profitable upstream business. But you cannot change the market rules based on one company, and as I pointed out in muy blog on Centrica’s results, it could force its competition out of the market if it used the current upstream profits to subsidise the supply business.
It seems to me that the main people failing to treat customers with dignity were the collection agents, but I have seen letters from suppliers that are pretty strongly worded too. I was in a discussion on LinkedIn about a letter from Octopus to a customer, but was again pointing out that the letter by itself does not provide enough context. Some customers don’t want to pay and ignore demands. Others are so afraid of debt they bury their heads in the sand and also ignore demands. How can a supplier tell the difference between these two groups?
Energy supply is a low margin business, and high energy costs are a matter for the Government and not for suppliers. If suppliers were reimbursed by the government for losses due to customer debt, you would remove any such behaviours at a stroke. It wouldn’t necessarily be welcomed by taxpayers though…
I suspect that only those with little direct knowledge of how the Financial Conduct Authority has operated, would advocate inviting them to take over responsibility for oversight of any part of the electricity market.
It is not for cheap laughs that the magazine Private Eye’s business pages always refer to the FCA as the Fundamentally Complicit Authority. . Truly this would be leaping out of the frying pan, into the fire?
As a former banker and formerly authorised person, I have been personally regulated by the FCA and its predecessor organisations and I still think it would do a better job than Ofgem. The FCA does a decent job of regulating retail banks, which is where the analogy with suppliers is – it is less good at more complex areas of the FI industry but that is largely because of the issues all regulators face which is an inability to pay staff salaries that match those paid by the business they regulate.
Why has Ofgem not introduced anything similar to the FCA Principles in energy? The FCA Principles have been around for decades, and yet there is no equivalent in the energy market. Ofgem is failing to do the most basic aspects of regulation, so even the FCA, with its flaws, could do a better job.
The root cause of all this is mostly inflation which is influenced largely government intervention and spending policies over years where it spends money and then recovers it in a range of ways from direct and indirect taxation. Government of course intervenes massively in the Energy Sector with Net Zero policies it has been tied to legally for years by successive governments and never opposed or properly examined for the public by the media who choose to direct childish cat calls at Energy Companies and debt recovery services.
I think your own data has show these costs of intervention to be around 30% at least
I feel if the regulator does its job it should rightly criticise the poor quality of mass media input, something desperately needed.
The fact is an honest assessment of the impact on costs of the so called Pandemic and the totally avoidable support for NATO everywhere have had a minor impact.
Energy prices could easily be reduced massively if everyone made the purpose of the Industry cheap energy.
The regulator needs to be be honest and show that the bills are massively made up of political redistribution levies already and that this is not only grossly unfair and outrageous but threatening ordinary people’s lives even
This is true and not true – at the moment green levies are not being covered under the Energy Price Guarantee, although obviously without those the discount on the wholesale price might be higher.
I’m not sure what you mean about cheap energy – I’m not sure there is much scope to make energy cheaper. You can make bills cheaper by removing policy costs, and you can halt the increases in network costs by pausing the build out of renewables (which would also stop the increase in subsidy costs which are c £10.5 bn per year). But there’s not a lot that can be done about gas prices, and even changing the basis for electricity pricing would be complex to implement, which is why it hasn’t been done yet despite all the rhetoric. An announcement of this was expected as part of “Green Day” but it didn’t happen.
Expensive energy isn’t going away because of the impact of net zero policies – this is widely recognised, although some people try to suggest that more renewables will reverse this due to wind and solar being “free”, but of course, that ignores all of the subsidy costs, network and balancing costs etc.
electricity retail is about holding customers money , petrol stations, oil and LNG delivery companies are paid on delivery for the amount delivered at the price stated at the point of delivery. But you are right in the case of electricity and pipeline gas retail. Ofgem has prioritised green objectives above consumer protection and this is wrong and it is contributing to poverty levels.
Based on this interesting and informative article and my own experiences of dealing with ofgem and electricity suppliers, it is clear that ofgem need to be reformed. I mean that literally so that the management are sacked and they are given new and clear guidance on what their role is.
Rather than a social tariff for some, I would like to see more strict price constraints with a particular focus on home heating costs.
From my own perspective, but also those in a similar position to me who use off peak electricity for heating, there need to be much stricter constraints over E7 off peak tariffs. Historically, the suppliers have unfairly manipulated the E7 off peak tariffs to catch out many vulnerable customers who cannot switch suppliers easily. Because of ofgems weird asumption around the average % use of energy used at night, suppliers could double the night rate and adjust the day rate while keeping the average within acceptable constraints. As a savvy customer, I sometimes changed supplier twice a year but clearly most customers would not do this. When raised with ofgem it was clear they didn’t understand the problem.
Ditto with regard to the enforced installation of pre-pay meters, ofgem do not seem to understand. Having said that, newspapers and the media generally should be made more accountable when reporting on issues where they can unfairly impact on the commercial interests of companies.
The problem with price constraints is that they can force suppliers to sell below cost. That is the reason half of suppliers went bust in 2021 – they price cap was lower than the market price at which they had to buy energy unless they had pre-hedged everything. The price cap operates as a constraint but it is set at a level which allows an “efficient” supplier to recover its costs. Although yes, there are issues with the way the E7 tariff is operated.
Ofgem’s assumption isn’t weird btw, it’s just out-of-date…when E7 was introduced people were using storage heaters to heat up at night in order to release heat during the day. Fewer people have storage heaters now so the usage pattern has changed, but the original assumption was correct.
PPMs are getting a bad reputation through all of this, but they serve a useful function for both consumers and suppliers. If a customer is struggling to pay but does not have a PPM, its energy debt will continue to grow without limit, potentially reaching a level which the customer could NEVER repay. As the blog above points out, there are real ethical issues with that. PPMs allow consumers to control their energy spend, and this can be very useful for people who prefer to base their finances around cash rather than credit specifically to avoid getting into debt. And if customers refuse to pay, they need to be put on a PPM whether they like it or not because otherwise everyone else ends up paying for the energy they use which is completely wrong in my view. If there is a need to subsidise some customer groups that should be done through the tax and benefits system and not from the pockets of other customers who might not be able to afford the increase themselves.
What has annoyed me more than some of the more ill informed heart wringing over pmm is the total lack of complaint from any party regarding the obscenely high unit cost of gas and electricity, and worse, the massive increase in daily standing charge, sanctioned by Ofgem, to cover admin costs following the financial collapse of so many suppliers. Why should other customers cover the costs of suppliers who take over customers from failed firms, or indeed subsidise those customers who chose to be supplied by cheap suppliers.
The real scandal is our energy policy makers deliberately making energy much more expensive in their pursuit of the chimera that is Net Zero worsened by Ofgem switching from protecting the consumer to delivering Net Zero as admitted by the CEO to a HoL committee in November 2021.