Over the last few years we have seen a huge increase in the numbers of new entrants entering the energy market.
New entrants play an important role in improving competition and driving diversity, both in terms of customer proposition and value by creating and delivering more choice for consumers. However, those entering the marketplace face the challenge of understanding and gaining entry to a heavily regulated industry. In some cases new entrants may be less aware, lack understanding, or be unprepared to manage the numerous complex regulatory requirements which are imposed on them by the regulator and code administrators.
New Entrants – Achieving and maintaining regulatory compliance
If suppliers fall short in meeting regulatory requirements, the implications can result in financial penalties from the regulator, which in turn can effect a supplier’s ability to take on new customers and ultimately to trade. Therefore the importance of understanding the rules and obligations which suppliers are required to comply with can’t be understated, and will enable new entrants to implement the appropriate measures and interventions to ensure compliance.
As well as ensuring compliance, understanding some of the rules and regulations can also give new entrants a competitive advantage which can be used to help define the strategy for the specific area of the market that matches their proposition.
Having a clear view of the key compliance issues that may affect their business and learning from the previous high level non-compliance failings of other suppliers, such as complaints handling and mis-selling, is an important step for new entrants. This is due to the fact that it will enable them to plan, implement, monitor and continually improve processes to ensure they are compliant with current and future regulatory obligations.
Below are a number of the key compliance and regulatory issues new entrants should always explore before joining the energy market:
- Customer number thresholds – These apply for certain obligations which means the smaller suppliers do not have to comply with them until they reach the appropriate size. Having an understanding of these exemptions will help them make key business decisions around the size of its portfolio, as some of these exemptions will provide a price advantage over larger competitors.
- Complaints Handling Standards and Obligations – All companies are required through strict complaints handling standards to deal proactively with complaints from domestic consumers. All companies should have complaints procedures detailing how they will do this. Due to the customer impact around these obligations the risk of adverse media coverage is significant.
- Standard of Conduct (SoC) – In 2013 Ofgem introduced SoC, Its objective is to make sure that each customer is treated fairly. The standards cover all communication between suppliers and customers, ranging from the way in which new energy deals are marketed to the handling of any complaints about energy bills, tariffs or service levels. There are three core elements to the standards: behaviour, information and process – which apply to every supplier, as well as any organisations that represent them, including brokers and third party intermediaries.
- Back Billing – Under The Code of Practice for Accurate Bills, a voluntary code set out by Energy UK and the big six, Energy Suppliers have a responsibility to ensure Customers are accurately billed for energy consumed. Where the suppliers are at fault in not billing a domestic customer, they cannot send a bill which includes unbilled energy consumed more than 1 year previous to the bill being issued. This can have a direct impact on the balance sheet of a supplier and carries an inherent write off risk. Whilst the code is voluntary, the bar has been effectively set de facto by its use within the big six. So whether you accede to the code or not, you should aim to reach, or better yet beat it.
- Supply Licence Condition 25 (Mis-selling) – Supply Licence Condition 25 ensures information that is provided to domestic consumers is fair, not misleading and presented in an accessible way with appropriate prominence given to key information. It also aims to ensure that relations with consumers is conducted in a fair, transparent, appropriate and professional manner. Total fines to date in relation to this aspect of the supply licence run into the millions.
Interested in understanding more about the obligations and associated risks to your business, or have plans to enter the market? Get in touch. Our Regulatory & Compliance Manager Annmarie would be happy to point you in the right direction;