Modifications to electricity and gas supply license conditions relating to supplier marketing of products will take effect this week.
Ofgem announced its intention to introduce five new “informed choices” principles to replace the existing SLC 25 license condition in April. But the new rules will apply from 23 June following a “cooling off period” to help companies transition.
The new principles mark a significant milestone in Ofgem’s protracted shift away from prescriptive regulation.
Writing for Utility Week, Ofgem senior partner Rachel Fletcher said the principles-based strategy is “bearing fruit”.
Following this week’s changes, Fletcher added: “There are further changes to come. For example, we will tackle the 100-plus pages of rules on bills and other communications. Many customers find these communications confusing.”
She concluded: “The increased use of principles is vital to ensuring we have a rulebook that reflects society’s expectations and allows the industry to respond well to the challenges and opportunities that the future will bring. There is no letting up in our resolve to make this change.”
The new marketing rules which become enforceable this week are designed to promote transparency and fair treatment of domestic energy consumers while giving suppliers room to differentiate their approaches to selling.
Three of the principles aim to promote tariff comparability and two are specifically targeted at sales and marketing tactics.
The new principles include a requirement that suppliers ensure the “structure, terms and conditions of its tariffs are clear and easily comprehensible” and a separate condition that tariffs are “easily distinguishable from each other”.
With regards to sales and marketing practices, the new principles stipulate that the licensee “must not, and must ensure that its representatives do not, mislead or otherwise use inappropriate tactics, including high pressure sales techniques, when selling or marketing to Domestic Customers.”
Furthermore, the licensee “must only recommend, and must ensure that its representatives only recommend,” domestic energy tariffs which are “appropriate” for a specific customer.
In her Utility Week column, Fletcher said Ofgem is “convinced this principles-based approach – along with a significant step up in our own compliance monitoring and assurance work – is the most effective and sustainable way to achieve the treatment that energy bill payers expect and deserve.”
However, she also recognised that the regulator must maintain “confidence that Ofgem will continue to use its enforcement powers in a proportionate way and not simply because suppliers have taken a different approach to the one we expected”.
Partly because of this need, Fletcher said the regulator has begun identifying key areas where its principles-based mantra will not apply.
“Where we think there is only one acceptable way of treating customers, we will set this out in a prescriptive rule,” she said.
“It is not our intention to use a principle and hope that suppliers guess the right answer. Time limits on back-billing and maximum charges for installing a meter under warrant may be good cases in point.”