Response consultation on a new threshold for businesses accessing the Energy Ombudsman

Thank you for the opportunity to comment on the DESNZ consultation on a new threshold for businesses accessing the Energy Ombudsman. Our responses are enclosed below. We welcome this work to ensure that non-domestic consumers experience better outcomes in the energy sector.

Answers to the specific questions in the consultation

Yes, we do agree with the Government’s proposal to expand the eligibility threshold.

We have been working with a number of stakeholders, including Government, Ofgem, small business representative organisations, consumer groups, the Financial Conduct Authority (FCA), the Financial Ombudsman Services (FOS) and the Small Business Commissioner on the issue of increased access – we have also surveyed a number of small businesses. We have found that there is general support for this move, which is reflected in the responses that Ofgem has received to its current review of the non-domestic energy market.

Small businesses have faced considerable challenges with the Covid pandemic, the energy crisis and cost of living crisis. For many small businesses, the cost and time commitment of taking an unresolved complaint to court is prohibitive, and therefore unresolved complaints can remain just that. We believe that providing access to free redress via the Energy Ombudsman will not only help small businesses with unresolved complaints, but will also help to raise the standard of complaint handling within the non-domestic sector. We believe this is the case for two main reasons:

• The ombudsman model that we operate focuses on sharing data and insight with suppliers on the key issues that cause complaints in the first place. This process allows suppliers to tackle the root causes as well as provide more effective responses to tier one complaints.
• The mere process of providing the ability for small businesses to bring complaints to us can be a strong incentive for suppliers to resolve complaints in a timely way or to prevent them from occurring in the first place.

Both this consultation and Ofgem’s Statutory Consultation on the non-domestic market highlight that, in the financial sector, the FOS had its remit extended in 2019 to enable small businesses to access its services. The recent FCA review of this move has shown that it is working and achieving improved outcomes for small businesses and helping to raise standards of complaint handling in the financial sector. If the same change is made in the energy sector we will monitor the success to ensure it delivers the desired outcomes.

We agree that these should be the combination of threshold indicators. Please see the response below for the proposed levels of each.

We think that this makes sense (including the conversion to British Pound Sterling) and will provide some consistency in small business definitions. It seems appropriate to use a definition that would provide the most consistency in terms of engaging the small business sector with dispute resolution. With that in mind, we think it makes sense to align the small business definition with the one used by the FOS for any remit extension in energy, and believe this should be reviewed once the scheme is established and we see how well it is working for small businesses

We agree with the proposed definitions in terms of annual consumption levels for energy. We think these indicators will be easily understood by businesses who wish to know if they are eligible to use our service, and by us in determining whether we are able to accept complaints.

We agree that a consistent approach will support small businesses, suppliers, brokers and Citizens Advice as well as the processes we use to operate the Energy Ombudsman and the Energy Broker Alternative Dispute Resolution (ADR) scheme. We believe that small businesses should be given the same protections, whether they choose to use a TPI or not, to engage with their energy supplier. Aligning the ombudsman requirements for both scenarios seems a fair and reasonable step to help achieve this.

In terms of ensuring that all stakeholders are ready for the change, we believe it would be preferable for the timescales to be the same. Ofgem’s consultation proposes an eight-month timescale for the remit extension, from the decision going live to energy brokers signing up to the Energy Broker ADR scheme. As we summarise below, we believe this is an achievable timeline for an extension of access to both our core service and to the broker scheme. We also consider this to be sufficient time for suppliers and TPIs to adjust systems and processes as necessary to make the changes.

Whilst we would advocate for consistency in the timing of scheme extensions, we will continue to work with Government, and Ofgem as necessary, if an earlier implementation date is desired and achievable.

We welcome the proposals from Government and Ofgem to extend protections for small businesses as we recognise the challenges that they have faced over recent years. We are preparing for any remit extension and will operationalise our service in a timely way. This was achieved for our most recent expansion of service, the Energy Broker ADR scheme, within the specified eight months.

The broker scheme launched successfully in December 2022 and we have on-boarded over 1800 energy brokers and accepted over 900 disputes from microbusinesses. We have learnt a lot during its first year of operation, both in terms of the key themes and the trends of the complaints. We are in the process of reviewing the first full year of the scheme which will likely include strengthening scheme delivery and sharing insight with the sector on our learnings.

Our preparations for the broker scheme included:

• Engaging with all stakeholders in the sector: Government, Ofgem, energy brokers, energy suppliers and consumer organisations.
• Establishing a full project governance process including a project board and comprehensive plan.
• Establishing our terms of reference.
• Supporting energy brokers with the process of joining the scheme in good time for the go live.
• Providing energy brokers with guidance documents and webinars to explain who we are, how our systems work, how to prepare case files and highlighting what a good complaint handling process looks like. We also provided on-going contact points for the scheme.

We can provide assurances that, in the event of a decision to increase our remit, a comprehensive process would be followed for providing access for small businesses to both the Energy Ombudsman and the Energy Broker ADR scheme, in particular:

• Engaging with the non-domestic sector. We will continue to engage with stakeholders in the sector to understand the specific issues that small businesses face. We will also work with the same stakeholders to ensure that clear signposting is in place for small businesses who need support in resolving their complaints. We’ve also had discussions with the FCA and the FOS on the work they’ve done in extending the non-domestic remit. We will also look to engage further with suppliers and brokers with a view to familiarising ourselves with the types of issues and complaints we are likely to encounter. This will ensure that we have the required skills and experience to resolve complaints.
• Building knowledge and capability to deal with complaints from small businesses. Though we have significant experience in resolving complaints from microbusinesses, we’re working to enhance our capability and understanding of how we would investigate complaints from small businesses. An initial step, which is currently in progress, is to recruit additional specialist regulatory and legal expertise in this area. Together with our industry engagement, this would allow us to ensure that we have the required technical knowledge to resolve the complaints we are likely to receive.
• Preparing operational resource and capacity. It’s always difficult to accurately predict complaint volumes in the first year of any new scheme, but we are preparing operational capacity to ensure we have sufficient resilience in a number of scenarios which we have modelled. We currently have a specialist team working on non-domestic disputes and in the last three months we have increased the number of operational colleagues trained to work these cases.
• Reviewing and preparing for any system or process changes. We have already specified the likely changes required to our complaint management system and our in-house software development business, Lumin would be able to make the changes quickly if the remit extension was confirmed.
• Training. We are developing training and support materials for our teams and for new and existing energy suppliers and brokers who would be covered by the remit extension.
• Engagement Plan. We are scoping out a potential engagement plan for all stakeholders impacted by the remit extension.

All of this work would be controlled by a full project governance framework with a Project Team supporting it. We would work closely with DESNZ and Ofgem on timescales and would provide project reports to ensure that the schemes are ready when needed.

We also agree that any new small business access should be reviewed within the first 18 months so we can assess what works and where improvements need to be made to ensure the policy objectives are being met. The review exercise will also help to look at whether access to the Energy Ombudsman could be made available to more non-domestic consumers in the future.