Ofgem Change of Supplier Expert Group (COSEG) 20 May 2013

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1 Ofgem Change of Supplier Expert Group (COSEG) 20 May 2013 Headlines Ofgem is aiming to streamline and improve the switching process by focussing on a number of areas it feels could be speeded up/ improved; and this first meeting of COSEG considered changes to the way objections are dealt with (including possible abolition of the objections process, although this does not seem likely) and changes to the gas confirmation window. Participant Supplier/ Shipper Generator/ Producer Transmission Networks Large consumer Potential impact 1 electricity Potential impact gas Attendees: The meeting was chaired by Andrew Wallace (Ofgem) and attended by shipper, transporter and consumer organisation representatives with observers from Xoserve and Ofgem. Operation of COSEG Terms of reference The objective of the COSEG project is to deliver a fast, reliable and cost effective change of supplier process that will facilitate competition and build consumer confidence. The role of COSEG is to: identify the key aspects of the change of supplier process that should be subject to review to deliver the objective; for each of the reform areas identified, critique any options presented by Ofgem against the agreed evaluation criteria; for each of these reform areas, identify any further options and assess these against the agreed evaluation criteria; identify links and dependencies between reform options and any other relevant part of the industry regulation and design that may impact or otherwise constrain their successful deployment; identify appropriate end to end proposals for the change of supplier process that Ofgem could use as the basis for its Q114 consultation; and solicit and represent the views of the constituencies that Ofgem has asked individual members to represent. The project scope covers the change of supplier process from the point where the customer chooses to switch until they have received a closing bill and an opening bill from their old and new suppliers respectively. The scope does not include processes around customer acquisition or changes to the cooling-off period. It covers all GB gas and electricity 1 1 = critical issue; 2 = significant commercial impact; 3 = intermediate commercial impact; 4 = modest commercial impact; and 5 = no obvious commercial impact.

2 customers both domestic and non-domestic, all meter types and customers supplied on independent and licence exempt networks. Initial areas proposed for consideration by COSEG include: the request to change supplier; nominations in the LSP gas market; objections; the gas confirmation window; obtaining and estimating opening and closing meter reads; erroneous transfers; and data quality in general. The case for reform A presentation was provided by Ofgem highlighting that: switching has declined from 20% of domestic gas and 19% of domestic electricity customers in 2008 to 13% of domestic gas and 14% of domestic electricity customers in 2012; results of a survey conducted by Consumer Focus suggest 15% of customer transfers take longer than five weeks, despite licence obligation introduced in 2011 as part of the EU Third Package requiring that all supplier switches take place within three weeks of the close of any cooling-off period. This is not currently possible through gas central systems but these are being amended to allow this by November 2013; around 1% of transfers made by the Big Six are recorded as being erroneous transfers. Ofgem estimates that it costs suppliers at least 10m per annum to administer this process; around 7% of domestic transfers and 25% of non-domestic transfers are blocked by the losing supplier; approximately 10% per cent of domestic transfers require the losing and gaining suppliers to exchange data outside of the standard process to correct opening and closing meter read issues; and delays to receiving final bills and setting up new customer accounts are frequent. It was noted that other foreign energy markets such as New Zealand and Victoria (Australia) facilitate electricity and gas supplier transfers within a one-week period. Ireland has an eight working day transfer process for electricity customers and next day switching in the gas market. In the UK telecoms market, Ofcom requires mobile operators to provide the Porting Authorisation Code (PAC) within a two-hour period (although it should be noted that this is not the same as completing the supplier switch). In the GB market, 63% of gas and 65% of electricity consumers claim to have never switched supplier. 20% of those who have never switched say that they are deterred from doing so due to switching being a hassle. Research previously commissioned by Ofgem suggests that the switching process is unclear. There is a perception that problems may result, thus creating a disincentive to switch. DECC s latest impact assessment in relation to switching suggests that changes to the process could result in 1.6bn in gross benefits. Ofgem is of the view that there is also likely to be a benefit to industry as a result of reduced resource required to deal with erroneous transfers. A fast and reliable switching process would also benefit competition as it increases the likelihood of consumers engaging in the market and stimulates new entrants and product innovation. Guest speaker Experience from number porting in mobile telecoms A presentation was given by director of Laurasia Kevin Werry; the company is a consultancy specialising in market design in the telecoms industry. Examples were given of reforms in markets in the Middle East and Africa that had resulted in significant acceleration of the telecoms supplier switching process resulting in significant benefits to competition. The view was that there was no reason why this could not also be achieved in the GB energy supply market. 2

3 Work plan The following work plan was set out: 20 May - initial discussion: objection process, confirmation window (gas only); 10 June - initial discussion: erroneous transfers, data transfer and access requirements; - further discussion on options and evaluation: objection process, confirmation window (gas only). 1 July - initial discussion: centralising registration services, registration processes (including cooling off period and gas nomination); - further discussion on options and evaluation: erroneous transfers, data transfer and access requirements. 22 July - initial discussion: data ownership and governance, access to metering data and support for metering market; - further discussion on options and evaluation: centralising registration services, registration processes (including cooling off period and gas nomination). 28 August - initial discussion: security keys, billing standards; - further discussion on options and evaluation: data ownership and governance, access to metering data and support for metering market. 9 September - initial discussion: outstanding issues, review of end to end process; - further discussion on options and evaluation: security keys, billing standards. 1 October - further discussion on options and evaluation: outstanding issues, review of end-to-end process. Reform options: objections process It was stated by Ofgem that it is seeking to reduce the impact of objections on the length of time it takes to transfer supplier and the uncertainty that this causes for customers. The following options were considered: Option 1: No objection process - quicker transfers; - more certainty on transfers; - faster transfers; - no impact on other systems; and - no regulatory input required. - more erroneous transfers likely. 3

4 Option 2: Roll-backs - erroneous transfers could be prevented; and - applicable to all customers. - likely to result in customer confusion and additional effort; - complex design; and - potentially difficult to regulate. Option 3a: Shorter within day objection window x hour objection window Option 3b: Shorter within day objection window fixed cut-off within day Option 3c: Shorter objection window one/ two days - minimum effort for consumers; and - faster transfers. - requires Ofgem to monitor and enforce; and - Options 3a and 3b give limited opportunity to flag erroneous transfers Option 4: Central register of objections - transfer quicker; - minimum effort for consumers; and - transparency on objection status, gives Ofgem greater abilities to monitor and challenge. - might not catch erroneous transfers. The general view appeared to be that one of the Option 3 alternatives was the most attractive but it was uncertain as to which of the three was most preferable. However, some participants appeared most inclined towards Option 3c (one to two day objection window). This will be discussed further at the next meeting on June 10. Reform options: confirmation window (gas only) Ofgem stated its aim is to promote faster switching and alignment with electricity by removing or reducing the seven working day time between the objection window closing and the customer transfer date. Xoserve confirmed a move from D-7 to D-3 would be expected to have a limited material impact on demand attribution. Option 1 Reduce confirmation window - faster transfers; and - no regulatory input required. 4

5 - potential to restrict future business models and alignment with electricity. Option 2 Remove confirmation window - faster transfers; and - no longer need to consider the confirmation window as part of the change of supplier process. - complexity makes it potentially difficult to regulate. The general view was that a reduction of the window was preferable to removing it as total removal might have a considerable impact on demand attribution. Next meeting 10 June, Ofgem, London Papers are not yet available Further information please contact Chris Hill on or at chris@.com 5