Calm before the storm? 2021 energy supplier compliance developments

The latest update to our Energy Supplier Compliance Portal went live on 4 May and includes changes to the compliance landscape during February to April 2021. While the previous quarter’s update reflected new principles resulting from Ofgem’s Supplier Licensing Review (SLR) and protections for prepayment meter customers facing self-disconnection, Q121 has been less busy, at least on the implementation front.

Still, one of the more significant compliance developments in Q121 has been the regulator’s consultation on proposals for prescriptive rules to reduce the scale of credit balances at risk of mutualisation in the event of supplier failure. While prescriptive requirements were first mooted in 2019, Ofgem considered that more time was needed to finalise its proposals on this topic. This latest consultation, which is part of the regulator’s SLR, follows concerns that some suppliers may use customers’ surplus credit balances to fund otherwise unsustainable business practices.

Under the proposals suppliers would be required to refund any credit balances for domestic credit customers paying by fixed direct debit, each year on the anniversary of the contract start date. A threshold policy is proposed alongside and would see thresholds for credit balances set at key points during the year, with credit balances that exceed a given supplier’s threshold at an aggregate level to be protected or guaranteed. Responses are requested until 12 May, with a statutory consultation due in autumn. Any new requirements are expected be in place before the end of the summer 2022.

Based on responses to the 2019 policy proposals, the decision was made to consider cost mutualisation in relation to government schemes such as the Renewables Obligation (RO) separate from credit balance protections and jointly with BEIS. As such, we’re also expecting a decision on RO reform.

Also published during Q121 was Ofgem’s final Forward Work Programme (FWP) 2021-22 in which it was noted that its future of retail strategic change programme – one of five strategic change programmes as part of the FWP – will be finalised in the summer. The retail strategic change programme intends to ensure an energy transition that works for all energy consumers, fair energy prices, and a better deal for consumers in vulnerable circumstances. Planned activities to date on this front include a statutory consultation on the regulator’s microbusiness review reforms, due any time now, with implementation of final proposals expected to be later this year.

Moving to activities that form part of Ofgem’s core regulatory functions, and again focusing on developments impacting on the compliance landscape, several decisions and reports are expected in the coming months. The regulator is due to issue decisions on policy updates to the price cap as well as a report on the conditions for effective competition to inform the price cap decision making. A Consumer Vulnerability Report, with focus on debt and affordability, is also due, followed by a report focused on Priority Services Register improvements. The 2021 Consumer Vulnerability Report will be an especially important read with a 2020 report not being published due to Covid-19 reprioritisation. Any supplier good practice in supporting vulnerable consumers during the pandemic included in the report could inform the regulator’s expectations of energy companies going forward.

The recent period of ‘calm’ in energy supplier compliance is not unusual as the development and consultation of significant changes to the regulatory framework can take time. In this instance though, it’s fair to say that the pandemic hampered market participants’ ability to engage in several Ofgem workstreams during 2020, with the regulator itself pausing or deferring some of its own plans and activities.

In meeting the objectives of its retail strategic change programme, the regulator will continue to engage with suppliers to ensure that any proposals it puts forward are fully considered and understood by those responsible for implementation. As an example, with the price cap due to expire by 2023 at the latest, alternative arrangements are likely to require new rules.

If you wish to discuss changes to energy supplier compliance or request a demonstration of our online portal, please get in touch with Emma at e.bill@cornwall-insight.com.  

In addition, through our offerings in supplier compliance – including our Compliance Service and Energy Supplier Compliance Portal – we interpret the regulatory framework to understand specific, enforceable, obligations. We run workshops and courses on Domestic and Non-Domestic Energy Supplier Compliance. These include a high-level overview of the regulatory framework including primary legislation; the supply licence and important requirements which sit outside of the licence; organisations you should be aware of and the top compliance considerations along the customer journey. We will also take a look and discuss upcoming changes which will impact on supplier compliance too.

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