Ofgem launched a consultation on revised draft Enforcement Guidelines on Complaints and Investigations on 16 December 2011. The draft guidelines, which will update existing guidelines dating back to 2007, set out the watchdog’s revised approach to regulatory investigations into the likes of licence breaches, anti-competitive behaviour and breaches of consumer protection law.
The draft guidelines do provide more detail in many areas than the 2007 guidelines did. This is helpful, and must be in the interests both of regulator and regulated, since transparency will assist in ensuring that a fair process is followed in enforcement investigations and proceedings. Fairness is extremely important in these processes, because rights of appeal from enforcement proceedings are generally limited.
The most significant revision is the introduction of a settlement procedure. This allows Ofgem to negotiate with a company under investigation to achieve an agreed early resolution. Where an agreement is reached, recommendations will be made to a Settlement Committee, which will consider the terms proposed. This approach is more in line with that of other regulators such as the Financial Services Authority, and setting out the steps towards settlement (albeit that further detail could be provided) provides greater administrative certainty for regulated companies.
However, the draft guidelines in their current form do leave some questions unanswered. For example, while they provide that a member of the Settlement Committee cannot later sit on an Enforcement Committee in the event that negotiations break down, it is not clear whether the Settlement Committee could comprise individuals involved in negotiations with the regulated organisation being investigated. To achieve a fair process, there should be a clear separation of these functions.
The draft guidelines also contain more detailed provisions on action that Ofgem can take under the Enterprise Act 2002 in relation to unfair commercial practices. But they do not explain in sufficient detail how Ofgem would conduct such matters in practice. For example, it is not stated whether the organisations will be provided with the allegations against them in writing, or whether organisations will have the opportunity to respond to such allegations.
Despite the above limitations, there are revisions that will no doubt be welcomed by stakeholders. For example, there is now more information provided on the decision-making process and the role of decision-makers. The draft guidelines also provide more information on the circumstances in which Ofgem is likely to make a provisional order requiring a company to either stop doing something or to take specific action.
Elsewhere, the draft guidelines include more consumer-focused measures, such as on explaining the process for consumers wanting to make a complaint about their energy supplier.
The new guidelines consultation is taking place as part of a wider Ofgem review into enforcement, which among other things will look at the enforcement approaches of other regulators and options for swifter enforcement. We envisage that Ofgem may make some more dramatic changes to its approach to enforcement after its wider review.
Further, Ofgem’s review takes place against a backdrop of a large-scale examination of regulatory enforcement; the Department for Business Innovation and Skills held a consultation on its Transforming Regulatory Enforcement initiative over the summer of 2011, and announced on 7 December its plans for reform.
In particular, the department plans to review all regulators to examine the case for continued existence and to make sure each one is making the fullest use of alternatives to conventional enforcement models. In this context, we note that Ofwat’s comparable Approach to Enforcement document does not contain any procedure for settlement. Ofwat is not currently undertaking any parallel process of consultation and it seems that it has no plans to incorporate a settlement procedure in the foreseeable future. l
Nicola Williams is a partner, and Claire Bertram an associate, at Eversheds.
The draft guidelines can be viewed at http://www.ofgem.gov.uk/About%20us/enforcement/Pages/Enforcement.aspx
This article first appeared in Utility Week’s print edition of 2 March 2012.
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