Following frequent criticism of the regulator for being too soft on the energy sector, Labour has threatened to abolish the regulator and replace it with a tougher, more austere version, if the party is elected to power in May.
Last year, Ofgem referred the energy market to the Competition and Markets Authority (CMA) to “ensure competition works effectively for consumers”. The move seemingly backfired as the CMA turned its attention to the regulator itself, after industry players accused regulation of playing a part in reducing competition.
But is the most recent penalty – £7.75 million to Eon for overcharging customers – evidence that Ofgem is taking the energy industry in hand?
Utility Week takes a look at some of the most significant Ofgem penalties from the last two years.
Drax and Intergen – £28 million and £11 million
In November 2014, energy generators Drax Power and Intergen were hit with £28 million and £11 million fines respectively for failing to meet environmental targets under Cesp.
Drax only delivered 37.1 per cent of its target by 31 December 2012, while Intergen delivered much less at 6 per cent, meaning several thousand domestic customers missed out on energy saving measures such as loft and cavity wall insulation and had higher energy bills as a result.
In May 2013, Ofgem had launched investigations into six energy companies who failed to deliver their obligations by the deadline, of which Drax was one.
British Gas – £11.1 million
In December 2014, Ofgem forced British Gas to payout a record £11.1 million to vulnerable energy users after the supplier failed to meet mandatory targets to improve the energy efficiency of its customers’ homes.
Ofgem said it was “unacceptable” that the supplier achieved just 62.4 per cent of its obligations under the community energy saving programme (Cesp) scheme by the December 2012 deadline.
This led to around 6,750 low-income households experiencing delays in receiving energy saving measures which would have helped keep homes warm and lower bills during the winter of 2012 and 2013.
SSE – £10.5 million
In April 2013, Ofgem hit SSE with a record £10.5 million fine for mis-selling, after it discovered sales representatives had made “misleading and unsubstantiated statements” to potential customers about savings they could make.
The regulator said management had “consistently failed, over a prolongued period of time” to root out the bad practice. Even after SSE stopped doorstep selling in July 2011, problems had persisted in phone and in-store sales.
At the time, Ofgem senior partner in charge of enforcement Sarah Harrison said the fine “sends a clear message to suppliers that Ofgem will hold to account those companies which fail to treat consumers fairly. It is time for the energy industry to take note”.
The fine followed a £1.25 million penalty imposed by Surrey Trading Standards in May 2012, which was the heftiest fine to have been brought in a trading standards case.
Scottish Power – £8.5m
In October 2013, Ofgem hit Scottish Power with an £8.5 million penalty after it mis-sold energy deals via door-to-door salespeople and over the phone.
Scottish Power stopped doorstep selling in 2011 and has put in place independent checks on the conduct of its telephone agents in new sales. Ofgem said if this had not been the case the company would have faced a higher penalty charge.
Sarah Harrison, Ofgem’s senior partner in charge of enforcement, said the announcement is a “clear signal to energy suppliers of the consequences of breaching licence obligations and of the importance of taking action to put things right for consumers when they go wrong”.
Eon – £7.75m
On 2 April, Ofgem ordered Eon to pay out £7.75 million for overcharging customers following a price hike, and wrongfully imposing exit fees on those customers who opted to leave the supplier between January 2013 and 2014.
The regulator branded the repeat offence “absolutely unacceptable” and said that the penalty is higher to take this into account, warning that Eon’s actions undermine the government and regulator’s drive to boost customer engagement with the market by switching supplier.
Eon has already repaid customers £400,000 and the £7.75 million additional payout will be made to Citizens Advice to be used to help vulnerable customers.