Improving debt support in energy

Meghna Tewari is Head of Vulnerability and Consumer Policy at Ofgem, the independent energy regulator for Great Britain. Here she discusses the priorities in Ofgem’s draft Consumer Vulnerability Strategy published last month.

It’s a paradox that those who can afford their bills are more likely to get good deals anyway. It’s people who are more vulnerable that end up worse off, and least able to easily shop around.

Over the years, and as a result of Ofgem’s rules, the energy industry has made progress in improving support for consumers in vulnerable situations and improving debt management.

Since the launch of Ofgem’s 2013 Vulnerability Strategy, we’ve nearly eradicated energy disconnections for debt, restricted against excessive debt-related warrant and prepayment meter installation costs (saving indebted consumers around £18M), placed a vulnerability principle at the heart of suppliers’ businesses through licence conditions and delivered a price cap for 15 million households on poor value ‘default’ and prepayment meter tariffs. We’ve also driven greater market transparency through our annual Vulnerability, State of the Market and Consumer Impact reports.

But while we have come some way, we still don’t think enough is being done to support people experiencing payment difficulties. In 2018, over 1.2 million electricity customers and almost 1 million gas customers were in arrears or repaying a debt to their energy supplier.

The energy sector is also rapidly transforming, and we are now committed to a 2050 NetZero decarbonisation target. We are determined that everyone is able to benefit from these changes and are protected where necessary. That’s why we’ve started a conversation on the priorities of a new Consumer Vulnerability Strategy.

Future fit

With the advent of smart technologies, electric vehicles and resulting new business models, digitalisation, decarbonisation and decentralisation are initiating many changes to make the energy system more flexible, greener and cost-reflective. These too are likely to radically change the way consumers interact with their energy suppliers.

It presents many opportunities. For example, data enabled by the smart meter rollout allows suppliers to more proactively monitor and respond to consumers at risk of ‘self-disconnecting’ from their energy supply if they run out of credit. And customers too can get alerts in cases of low credit or high energy use, with a range of flexible top-up channels more readily available, including via mobile apps and online.

Equally, advances in data sharing capability across regulated markets, can help improve identification and support on cross-sector issues like addressing payment difficulties, affordability and customer service. A recent Priority Services Register data share pilot between a water company and an electricity distribution company already signals encouraging results in this area.

But where there are opportunities, there are also risks of making worse or creating new disadvantages – particularly with the greater expectation being placed on a consumer’s ability to engage digitally, or deal with bills, switching and contracts. We must also help decarbonise energy use at the lowest cost.

Energy vs other essentials

In our refreshed strategy, we’ve outlined plans to examine the price cap on ‘default’ energy tariffs (a basic deal you’re likely to be on if you’ve never switched or not done so in some time), and consider market design options. We’ve also set out what we intend to focus on delivering in the first year. It includes strengthening protections for people at risk of ‘self-disconnecting’ due to lack of credit, which we will consult on soon.

Self-disconnection and self-rationing to limit energy usage and save money for other essentials is deeply worrying. While it is now extremely rare that anyone is disconnected from their supply due to debt (17 disconnections in 2017, compared to 640 in 2013), in 2017 one in 10 prepayment customers temporarily self-disconnected.

There may be a number of reasons – affordability, operational issues, forgetfulness or customer choice. But we are concerned by research that shows many of these households contain a child or person with a long-term health condition, and the ruining impacts being without power or heat has on health and mental wellbeing.

Additionally, we don’t think suppliers are being proactive enough in their communications, or that a customer’s circumstances are sufficiently taken into account when they get into debt or payment difficulty. So we’re also proposing to strengthen ‘ability to pay’ principles and make them a condition in supplier licences. It would ensure suppliers properly consider a customer’s ability to pay when setting repayment plans, monitoring repayments and ensuring understanding of arrangements.

Building trust

Trust and confidence is built on empathy and sensitive communications. It’s also good business sense. There are rich sources of practical tools that companies can use to this end. In our annual vulnerability report, we referenced as a good example Money Advice Trust and Energy UK’s practical supplier guide on identifying and supporting customers with mental health problems. Another good example I have come across is where companies open up their governance and training processes to independent audits.

Ensuring that energy markets work for everyone is a collaborative process. We need to collectively work to lay the foundations for an even more dynamic and innovative future – in which all consumers can get the most from smarter services and live more sustainably. No one should face the dilemma of choosing between energy and other essentials, they are one and the same.

Ofgem is asking for input on its Consumer Vulnerability Strategy by 8 August 2019. Find out more on the Ofgem website here.

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