Last week’s payment of £12 million by Eon for mis-selling energy to its customers was depressingly familiar. But in years to come it could mark a turning point for the industry.
The conclusion of the Eon case marks the end of Ofgem’s five big investigations into mis-selling. It is behaviour like this that has damaged public confidence in energy companies.Trust is critical for any well-functioning market and over the past few years we have had a toxic mix of poor customer care and an energy market where prices have risen. It is no wonder that 44 per cent of consumers say they do not trust energy suppliers to be open and transparent with customers.
Hopefully we have now entered a new phase in the market, following the completion of these major mis-selling investigations and the acknowledgement by suppliers’ chief executives that there is a crisis of trust that they need to work hard to tackle.
I believe there are three opportunities that suppliers can seize on to transform the energy market for the better and restore trust.
First, Ofgem has put in place a framework to iron out poor supplier behaviour. The energy market is now easier for consumers to engage with, tariffs are simpler, and information is much clearer. Our “Be an energy shopper” campaign tells you how use these reforms to get a better deal. We have also put in place a licence condition that clearly sets out that suppliers must treat consumers in a fair, honest and transparent way and make their financial reporting much clearer.
There are signs that the penny has dropped and the industry is determined to bury its poor reputation, and there are some good examples of suppliers getting behind our reforms to help consumers. But in some areas there is clearly more work to be done with complaints still at unacceptable levels.
In this area, when failings in Npower’s billing processes led to a dramatic increase in complaints, Ofgem intervened and the company put in place a recovery plan, paid vulnerable consumers £1 million and gave a commitment that no-one would lose out financially.
In addition, the industry also has a golden opportunity to show it gets the message by acting fast to return the significant amounts of money on its books, which have been left behind when some consumers changed supplier. Here are two areas where the industry will be judged by its actions not words.
Second, we are also proposing a referral to the Competition and Markets Authority so consumers can have confidence that there is nothing that is preventing competition from working effectively. However, regulators can only do so much. It is the day-to-day behaviour of energy companies with their customers which will prove critical to restoring trust.
What we need is a transformation in how energy companies treat their customers, and one that is sustained and delivers tangible improvements in customer service. Unless this transformation takes place, we risk creating an inhospitable environment where lack of trust undermines investor confidence in the market. This in turn pushes up the cost of borrowing in such an uncertain market, which again increases energy bills.
This is just when we need an unprecedented level of investment of over £100 billion. Keeping investment costs low for consumers is crucial if we are to make the transformation to a low carbon economy that the government has committed us to.
Let’s not kid ourselves: even if suppliers’behaviour is exemplary and they transform their customer service, it will still be a massive challenge to restore consumer trust if energy prices increase further. Despite recent softening in wholesale prices there is likely to be long-term upward pressures on energy prices given the need to replace ageing power stations, meet Britain’s environmental targets and cope with global fluctuations in energy prices now that we import over 50 per cent of our gas.
However, the third opportunity that could transform the market is the introduction of smart meters. Smart meters will make it easier and also more empowering for consumers to engage with their energy use. Not only will you get real-time information on your energy use, but it will mean more accurate bills.
These changes, along with a better track record in customer service with special consideration for vulnerable consumers, could mark a turnaround in the public perception of the industry.
So while last week’s record payout was a reminder of how energy companies have let consumers down in the past, there are three opportunities which can help restore trust in this vital industry: Ofgem’s reforms for a simpler, clearer and fairer market, our proposals to refer the energy market to the Competition and Markets Authority, and the implementation of smart meters.
What it now needs is a determination by suppliers not to let these opportunities pass.