Ofgem finds ‘declining quality of service’ in the energy market

Ofgem has said there are some signs of “declining quality of service” in the energy market.

In its third annual State of the Energy Market report published today (3 October) the energy regulator said there were large variations across suppliers in terms of the quality of service.

Ofgem said that while overall customer complaint numbers are “relatively stable”, there have been big increases in the number of cases referred to the Ombudsman in relation to small suppliers.

For example, the report says, in the first quarter of 2019 the Energy Ombudsman accepted more than 100 cases per 100,000 small supplier customer accounts, compared to around 20 cases in the first quarter of 2017.

Ofgem says that while a majority of consumers “remain satisfied” with the service provided by their energy supplier, consumers perceive energy retailers as performing worse than services providers elsewhere in major sectors.

In response to the report Matthew Vickers, chief executive at the Energy Ombudsman, said: “While there are some examples of smaller suppliers offering excellent customer service, it’s true that we have seen a significant increase in complaints about these companies.

“What’s disturbing is that in general we’re also seeing poorer signposting disciplines at smaller suppliers – signposting being the process by which suppliers should make their customers aware of their right to come to us if they have an unresolved complaint.

“Indeed, currently we see evidence of effective signposting in only 10 per cent of complaints that reach us from customers of small suppliers. That’s compared to around 70 per cent for large suppliers.

“This matters because it acts as a barrier to a consumer’s right to independent redress and also skews data and scores from key industry indicators such as the Citizens Advice star ratings.

“We’ve shared with Ofgem some of the work we’ve done that shows strong a correlation between poor signposting and customers not getting fair outcomes at the end of supplier complaint handling processes.

“We’re keen to work with Ofgem to make sure that this foundational part of consumer protection is in place across the market.

“It’s important to have a fair and consistent approach for customers across the energy sector, whatever size the supplier.”

Meanwhile the market dominance of the big six suppliers continued to weaken as they lost 1.3 million customers, seeing their market share fall to around 70 per cent of consumers, compared to around 75 per cent the year before.

For the first time, small suppliers saw their market share fall to 9 per cent, down from 10 per cent from the year before.

Medium suppliers have expanded and exerted further competitive pressure on the six largest suppliers. As a group they achieved a net gain of 1.9 million customers, with combined market share above 20 per cent.

In recent months the market has seen a number of suppliers ceasing to trade. Between January 2018 and June 2019, 12 suppliers exited the retail market yet despite this, Ofgem says market concentration continues to fall.

The regulator explained this by highlighting that medium suppliers absorbed the majority of the customers from failed companies, as well as acquiring customers through switching, resulting in medium suppliers growing an exerting further pressure on the big six.

The report shows that greenhouse gas emissions have fallen by 42 per cent since 1990, more than any other large advanced economy. This, Ofgem said, was largely down to the decarbonisation of electricity generation.

Emissions from the electricity sector have fallen by more than half since 2012, yet progress in other sectors has been slow, and overall UK carbon emissions fell by only 12 million tonnes in 2018, the slowest rate of decline since 2012.

Responding to this statistic, Citizens Advice chief executive, Gillian Guy, said: “Much of the current debate is focused on the technical questions of how this can be achieved. But there is another public conversation which needs to be had – who pays for the transition to a low-carbon economy and how do they pay?

“Ofgem’s decision to focus on limiting the costs paid by consumers is welcome. But we believe the Treasury is best placed to look comprehensively at the issue of who pays and should establish an independent commission to ensure the costs of reaching net zero are fair to everyone.

“Current efforts to decarbonise are largely paid for through people’s bills – an approach which disproportionately hits the poorest in society. We cannot get these difficult decisions about decarbonisation wrong, because it will be those who can least afford it who will pay the price.”

Joe Perkins, chief economist at Ofgem, said:  “Ofgem’s latest state of the market report shows the progress made so far to decarbonise the economy but much more needs to be done.

“We want the UK to remain a global leader in bringing down greenhouse gas emissions, and our major objective is to help the country rise to the challenge of cutting emissions to net zero by 2050 at the lowest possible price to consumers.

“As well as protecting consumers in the future, our duty is also to protect those today.

“We will continue to enable competition and innovation which benefits consumers, whilst protecting those who need it, as we help build an energy market which works for all consumers.”