Citizens Advice response to Ofgem’s Call for Input on Consumer Outcomes

Citizens Advice response to Ofgem’s Call for Input on Consumer Outcomes 210 KB

Citizens Advice welcomes Ofgem’s call for input on Consumer Outcomes. For several years we have advocated for a more outcomes-based approach to regulation, including in our report Raising the Bar1. In it we called for a model similar to the Financial Conduct Authority’s (FCA) Consumer Duty. We think this approach can create a regulatory environment which protects consumers, promotes innovation and competition, and helps to bring down the cost of the transition to net zero. As products and services become more complex, asymmetries in information are likely to grow. To tackle this and ensure consumers are confident to engage in the market, we think it is particularly important that there are clear outcomes on:

• fair price - to ensure that consumers can be confident that the services they sign up for provide fair value, and

• products meeting consumer needs - so firms can monitor and respond to consumer experience on an ongoing basis

To ensure any outcomes-based framework remains coherent, drives high standards and embeds strong protections, we think it will also be necessary to update Ofgem’s requirement to treat customers fairly (SLC 0/0A), which in its current form expressly excludes the prices firms can charge. Changes must be in line with the FCA’s new consumer principle, which requires firms to ‘act to deliver good outcomes for retail customers’, and covers the price and value of products.2 This approach would also ensure alignment where products or services are across regulatory boundaries, for example, where low carbon technologies are leased under a financial agreement. We often hear from firms that the current framework fosters uncertainty and does not enable risk- taking in areas where there are no prescriptive rules. An outcomes-based approach should aim to create clear guardrails for suppliers while enabling more space for them to take different approaches that best meet the needs of their customers. The use of Ofgem’s existing Consumer Interest Framework, as the starting point for an outcomes-based approach, is sensible, and means key areas would be covered. The categories listed in the call for input are also helpful in identifying those areas. However, we are concerned that the 24 outcomes proposed runs counter to Ofgem’s aim to create a simplified framework. We believe this list should be consolidated.

We also think there are some key gaps in the proposed outcomes. For example, given the additional risks faced by people who use prepayment, we believe that setting a specific outcome would offer greater clarity and coherence with the range of prescriptive rules that exist in this area. Any future expansion of the framework to other services, like heat networks, may also need additional standalone outcomes that are tailored to their specific needs. We support a hybrid framework which strikes the right balance between advancing an outcomes-based approach, and ensuring that consumer protections in key areas are not compromised. In some areas, prescriptive rules could be removed immediately, or fall away over time as the market develops, 3 with particular focus on pricing and product rules that limit innovation. Where there is more risk and/or more significant harm, it would be appropriate to retain or strengthen some prescriptive rules or backstop protections, including protections around prepayment meters, debt, and billing. We also think Ofgem should particularly consider strengthening some key non-domestic protections, since many of these are already weaker than those in the domestic Market. To achieve the cultural and behavioural change intended by a shift to an outcomes-based framework, and to ensure continuous improvement, there needs to be a clear mandate on suppliers to develop their own monitoring of outcomes. They should also be able to demonstrate to Ofgem how they are using these to inform decisions about product design and services. An annual output like the one firms are required to produce in FCA’s framework, could play a useful role in demonstrating this to customers. Supplier led monitoring should be done in tandem with effective monitoring, and enforcement by Ofgem to ensure compliance and to protect consumers from harm and poor practice. It should include the collection of data and publication of standardised reporting on key outcomes, and where possible, clear thresholds for intervention. Advice and advocacy bodies should also continue their role in this space to ensure a holistic approach. Ofgem’s recent Compliance Operating Principles are a good step in this direction, but Ofgem should also learn lessons from previous principles-based regulations to ensure that new outcomes-based rules are enforceable. We also remain concerned by the slow pace of some enforcement activity, with investigation of failings related to prepayment meters still ongoing after 3 years. Slow investigations can reduce the deterrent effect, delay compensation and leave consumers open to risk.