Coronavirus: Ofgem offers regulatory flexibility to networks and suppliers

Ofgem has written to energy networks and suppliers to offer flexibility in their application of regulations during the coronavirus lockdown.

In two open letters – one to each of the sectors – Ofgem chief executive Jonathan Brearley outlined the types of works and services they should seek to prioritise during the crisis but said it would be up to individual companies to formulate their responses.

Brearley said companies should have three main goals during the lockdown: meeting customers’ needs, particularly if they are vulnerable; maintaining safe and reliable energy supplies; and ensuring the safety of consumers and workers.

Networks

In the letter to networks, Brearley said they should be able shift their focus to essential works and services “without undue fear of regulatory enforcement or penalties”.

“So long as they do this openly and with the clear intention of protecting consumers from immediate harm and/or maintaining the security of supply, Ofgem should be in a position to support these decisions and should not need to take any enforcement action against network companies,” he added.

“In a similar vein, we will provide relief from penalties under our RIIO-1 incentive schemes for any shortfalls in performance against targets associated with such de-prioritised work during this period of Covid-19 measures, provided the same tests above are satisfied.”

“To the extent that any re-prioritisation of work leads to the deferral of expenditure, we will seek to make appropriate adjustments to network company revenues if necessary for this in the close-out of the price controls, to ensure consumers are suitably protected.”

The document listed the following as high priority works and services:

• Emergency response and critical repairs, in particular dealing with faults that involve the loss of power supplies to customers.
• Network control room and call centre functions, including support for vulnerable customers.
• Safety critical work that affects the integrity of the power grid, the safety of the public or the environment.
• Planned works necessary to maintain power suppliers out to the coming winter, including inspections, maintenance and tree clearing.
• Connections work for other essential services including healthcare, food shopping and utilities such as water and telecoms.

Brearley said the list is “illustrative” rather than “exhaustive” and is likely to change over time, with some works and services that are currently considered low priority being bumped up to the high priority list.

He continued: “Decisions on what, how and when to prioritise are for individual network companies to make, based on their own circumstances at any point in time.

“Not all sectors or companies may need to utilise the regulatory flexibility provided in this letter, but it is there should they need it. Nothing in this letter obliges network companies to stop or suspend lower priority works and services, so long as these can be carried out in accordance with government guidance.”

Suppliers

In his letter to suppliers, Brearley reiterated that Ofgem will be “pragmatic in our approach to compliance during this period,” and that companies “should not be afraid to do the right thing for their customers”.

“Our focus in compliance will be to ensure that companies protect consumers from immediate harm, particularly vulnerable customers or where customers are at risk of going off supply, including self-disconnection,” he wrote.

“Where licensees can demonstrate that any compliance issues have resulted from prioritising efforts to protect customers and security of supply, we will take full account of this in any decisions we take.

“We don’t intend to prescribe all the activities suppliers should and should not prioritise during this period in order to protect consumers. In these exceptional circumstances, we recognise that suppliers’ individual circumstances will vary from each other and evolve over time and there is no one-size-fits-all response.”

The letter said suppliers would be justified in temporarily suspending home visits for meters reads, theft prevention and non-essential smart meter installations, but said they should continue if they are necessary to keep customers safely supplied.

It noted that suppliers have agreed with the government to support customers who are in financial difficulties because of the lockdown and said this should “frame their approach” to billing and payments: “We do not expect suppliers to be disconnecting domestic customers because of debt.”

It said suppliers should continue to communicate proactively with their customers to explain how they are dealing with the crisis and direct them to other sources of support. With suppliers facing an increase enquiries at the same time as staff shortages, Ofgem said they should have processes in place for logging those that are less urgent or critical so they can be addressed at a later date.

In instances where a supplier’s mistake has been to the detriment of customers, the regulator expects them to “rectify and as appropriate compensate for this as swiftly as possible, prioritising the processing of payments based on the value of the compensation and the customer’s circumstances”.

It said suppliers should strive to meet both the existing guaranteed standards for customers and those due to come into effect at the start of May but acknowledged that there may be circumstances where this is not possible.

Ofgem said it is pausing some regular reporting requirements and will not request a new ones or changes to existing arrangements unless they are “absolutely necessary”.

Both letters stated that, absent of any material change in circumstances, this more flexible approach to regulation will remain in place for the three months to the end of June: “As we approach that time, we will review the case for extending and/or amending the framework, based on circumstances at the time.”

Ofgem said it has initially focused on the consumers-facing aspects of regulation. Other issues, such as the setting of price controls and charging reviews, will be addressed in future announcements.