SSE has been fined, EDF Energy has paid compensation and Scottish Power, Npower and Eon-UK are under investigation. A mis-selling storm is engulfing the entire energy sector, says Megan Darby
Who says the energy sector is not competitive? A few years ago, SSE sales agents were going all out to switch customers. Unfortunately, it transpires they succeeded by spinning any number of dodgy lines, while management looked the other way. Now it has caught up with them, the company is eating humble pie and a £10.5 million fine.
SSE wasn’t the only culprit – EDF Energy last year admitted to breaking marketing rules. Scottish Power, Npower and Eon-UK are under investigation and could be next. British Gas is the only one of the big six energy suppliers untainted by allegations of mis-selling. At a time when the sector is seeking to rebuild trust, it is publicity it could do without.
Ofgem revealed a catalogue of misdemeanours. SSE switched customers to more expensive tariffs, misled them about competitors’ rates and set direct debits too low. One sales script began: “What I’m here to do today is show you a government thing called deregulation which results in your energy prices being lowered by doing nothing at all.” This was inaccurate and misleading, the regulator concluded.
Those charged with auditing doorstep selling received a commission on sales and had every incentive to let aggressive tactics pass, as long as they got results.
Fundamental failure
“This is not a case of one bad apple or one rogue sales team,” says Trisha McAuley, senior director at Consumer Focus Scotland. “The problems at SSE affected the whole direct selling operation and represent a fundamental failure at one of our biggest energy companies.”
Newly appointed energy minister Michael Fallon also expresses shock at the level of deception. “I have rarely seen a worse case of consumers being misled so badly,” he says.
While they welcome Ofgem’s fine, others say it does not go far enough. The regulator could, in theory, have issued a penalty 250 times the size – 10 per cent of SSE’s £30 billion turnover.
Richard Lloyd, executive director of consumer body Which?, says: “This record fine sends a clear warning message to all energy companies, but will be too little too late for many customers who were mis-sold.”
Three SSE executive directors did not get a bonus in 2012, but Labour is calling for a bigger sacrifice. Shadow climate change minister Luciana Berger says: “It would be completely unacceptable for the energy bosses responsible for this scandal to get any kind of bonus when SSE announces its financial results later this year. These people should be considering their positions, not being rewarded for failure.”
There is widespread support for moves to give Ofgem greater powers of redress in these situations. At present, fines go straight to the Treasury rather than benefiting the victims of mis-selling.
Redress inconsistencies
The regulator has secured voluntary redress packages in the past. EDF Energy successfully avoided a fine last May by offering a £4.5 million compensation deal for customers, after acknowledging shortcomings in its sales practices.
It is not clear why this case could not have been settled in the same way. An Ofgem spokeswoman says the regulator was open to negotiating a similar deal with SSE, albeit reflecting that the offences were “more severe and over a longer duration” than EDF’s. An SSE spokesman insists the firm was also open to the idea, but “discussions with Ofgem were long and difficult and that was not possible”.
SSE has taken some steps to make amends. It set up a £5 million compensation pot in December 2011, of which £400,000 has been claimed. Executives have been apologising profusely all over blogs, radio and TV. And it has “transformed” its approach to sales.
It might not be long before Scottish Power and Npower also have to do a spell of public grovelling. Eon-UK, which came into the frame in 2012, two years after the rest, has more time to prepare a damage limitation strategy.
This article first appeared in Utility Week’s print edition of 12th April March 2013.
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