npower, Ofgem and Consumer Focus

Sterling

In response to my complaint against Ofgem dated 28th April 2009 (a copy of which is posted earlier in this thread, beginning at #14), here is the response from Ofgem. Because of the limit on the number of characters per MSE post it has been necessary for me to enter it in two posts.

My letter in reply (which raises a number of questions for clarification of Ofgem’s response) is posted after this copy letter.

Ofgem

26 May 2009

Dear [Sterling]

Ofgem's investigation into the energywatch complaint against Npower dated 7 March 2008

As the Managing Director responsible for the enforcement function, I am responding to your letter of 28 April 2009, complaining about the investigation Ofgem carried out following a referral by energywatch on 7 March 2008.

The two principal complaints you make are:

a) Part 1

that "Npower gave material information to Ofgem during the said investigation which was deliberately or otherwise false or misleading; and which caused that investigation to be fundamentally flawed and the result invalid"; and

b) Part 2

that "the Ofgem investigation into the said Energywatch complaint was seriously mishandled by Ofgem and that the process was therefore fundamentally flawed and the result perverse" . In particular, you submit that "Ofgem should not have accepted the tariff year argument as valid ... and Ofgem's failure to realise this was negligence in the extreme".

I will take each of these in turn.

Part 1

On the first point, let me set out the legal context for information provided to Ofgem. Any person providing Ofgem with information during an investigation is subject to statutory requirements on making false statements. Section 43 of the Gas Act 1986 states:

"Making of false statements etc

(1) If any person, in giving any information or making any application for the purposes of any provision of this Part, or of any regulation made under any provision of this Part, makes any statement which he knows to be false in a material particular, or recklessly makes any statement which is false in a material particular, he shall be guilty of an offence and liable—

(a) on summary conviction, to a fine not exceeding the statutory maximum;

(b) on conviction on indictment, to a fine

Any person who with intent to deceive—

(a) impersonates an officer of a [gas transporter], gas supplier or gas shipper for the purpose of obtaining entry to any premises; or

(b) for that purpose makes any statement or does any act calculated falsely to suggest that he is an officer, or an authorised officer, of such a transporter, supplier or shipper,

shall be guilty of an offence and liable on summary conviction to a fine not exceeding level 4 on the standard scale.]

(2) Proceedings for an offence under subsection (1) above shall not in England and Wales be instituted except by or with the consent of the Secretary of State or the Director of Public Prosecutions."

We therefore expect licence holders to ensure that the information they provide to us is accurate, given the legal implications of not doing so. This does not however mean that in carrying out investigations we automatically accept a licence holder's arguments. We explore statements made and if necessary seek further information to reach a clear view.

In this particular case, you assert that statements about the restarting of a tariff year and a reduction in the price charged in the second tier of the tariff are contradictory and therefore Npower gave false information to Ofgem. I do not consider this to be the case. The unit price of the second tier was reduced, even though the number of units which would have had to be consumed before entering the second tier was effectively increased by the restarting of the tariff year. I do not therefore consider Npower's statements to Ofgem to be false in this respect.

Part 2

Secondly, you assert that "Ofgem should not have accepted the tariff year argument as valid ... and Ofgem's failure to realise this was negligence in the extreme".

The investigation shows that Npower stated that in its view the use of a tariff year was a common industry term but, as you say, it confirmed on 2 July 2008 that no definition was given to customers.

I have seen no evidence that the Ofgem investigation team accepted that the restarting of the tariff year was explained adequately to customers.

You also assert that Ofgem could have informed Npower that if it did not compensate all those affected, it would seek a court order requiring Npower to do so. There is no basis under the Enterprise Act for us to do this. A court could only order a company to stop the relevant action - in this case the potential failure to explain the restarting of a tariff year. The investigating team did not consider that Npower was continuing to use the concept of a tariff year starting again when there was a change in a tariff.

I will now comment on some of the other matters you raise in your complaint.

End of first part. The second part (of two) follows.

Sterling

Ofgem’s letter…continued

Second of two parts

Firstly, I think it is important to recognise that decisions on investigations by Ofgem have to be taken in the context of the powers available and with regard to the best use of resources. In this case, the potential detriment to consumers was a key factor in the decision to open the investigation, but the conduct of the investigation and the decision to close it were against the background of the powers Ofgem had available to take action.

In this case, the powers Ofgem had available to it were to find a breach of a licence condition or to take action under consumer protection legislation as described above. Ofgem also has powers to enforce competition law, but the investigating team did not consider that these applied in this case.

In this particular case, Ofgem investigated whether Npower had breached Standard Licence Condition 44 by failing to notify customers of an increase or a change which varied any term to the significant disadvantage of the consumer. In the context of consumer protection legislation, Ofgem also considered whether Npower was failing to explain a term
clearly or was using an unfair term. For all of this, whether the action by Npower was in the
past or continuing was a key factor.

You also assert that the investigation was a "complete and utter sham" and that Ofgem
accepted every statement made by Npower without challenge. I have not found this to be
the case. The investigating team first reviewed the information provided by energywatch
and by individual consumers and then asked Npower a number of questions in April 2008.
This response was then reviewed within Ofgem and a decision was made in June 2008 to
open a formal investigation and to require Npower to answer a number of further
questions. A meeting took place in August 2008 to probe these responses and this
prompted further consideration by Ofgem. A further formal information request was issued
in September 2008 and the team reviewed Npower's responses.

During this time, the team reviewed all the information it had to gauge the effect of the
changes made by Npower, the information which had or had not been provided to
consumers, and the powers available to Ofgem if it found there had been a licence breach
or a failure to comply with consumer protection legislation. The legal advice given to the
investigating team was that Ofgem would have no ability to impose a financial penalty for a
breach of Standard Licence Condition 44 for failing to notify customers of the changes
made on 1 May 2007 because of the statutory time limit imposed by Parliament. Nor does
Ofgem have any powers to require compensation to be made.

You conclude by stating that the energywatch complaint must be reinvestigated. I have
considered this, but I am not clear what benefit there would be to consumers in doing so as
Ofgem would still not have any ability to impose a financial penalty on Npower or to require
it to pay compensation to consumers. Reinvestigation would take resources away from
dealing with other matters where Ofgem has a greater ability to take action.

I do not therefore uphold your complaint. I recognise that you feel strongly that Ofgem
should have acted differently. I can assure you that the Ofgem investigation team did take
these issues seriously in the context of the powers available to Ofgem. More generally, I
can assure you that Ofgem takes its duty to protect the interests of existing and future
consumers, wherever appropriate by promoting effective competition, seriously and our
work on the energy retail probe and the action we are taking as a result are a strong
indication of that. The measures we are proposing include simplifying information on tariffs,
clearer bills, the introduction of annual statements for consumers, and strengthening of the
licence obligations on marketing.

If you are unhappy with the decision made in relation to your complaint, then, in accordance with our complaints process, you may ask for an internal review by Ofgem's
Chief Operating Officer. You should contact him by email [edit- deleted] if you
wish this decision to be reviewed.

If you are not content with the outcome of the internal review, you have the right to refer
the matter to the Parliamentary Ombudsman (http://www.ombudsman.orq.uk) via your
MP.

If you have any queries about this letter, please contact me.
Yours sincerely

[Ofgem]

Sterling

Here is my reply to Ofgem. Again, due to the limit on the length of MSE posts, it is spread over three posts. Please see the main “npower gas sculpting” thread for the matter generally. Here is the link
http://forums.moneysavingexpert.com/showthread.html?t=822299&page=62

Ofgem
9 Millbank
London
SW1P 3GE

3rd June 2009

Dear [Edit - deleted]

Ofgem’s Investigation into the Energywatch complaint against Npower dated 7 March 2008

Thank you for your letter of 26th May regarding my complaint against Ofgem dated 28th April.

As this is a matter of considerable importance to a great many people, I wonder if you would be so kind as to let me have your replies to the following questions by way of clarification of what you have said in your response. I have numbered them for your convenience.

1. You opened your response by referring to Section 43 of the Gas Act 1986, and I am obliged to you for quoting the wording of that section of the Act. It is clear that you attach great importance to it, and you raised it in replying to Part 1 of my complaint dealing specifically with the truth or otherwise of the two main defences supplied by npower, being the “tariff year” and “compensation”.

a. Was any proof or corroboration obtained by Ofgem of either (or both) of those said defences from npower?

b. If ‘yes’ may I please know

i. the specific nature of such proof etc?

ii. the defence to which it relates?

c. I note that even upon conviction on indictment Section 43 does not enable a court to impose any period of imprisonment, and that the only sanction is a fine. Do you know by any chance the maximum fine possible under this section?

2. As regards the “tariff year” defence; in Part 1 of my complaint document under that heading, I submitted that npower’s concept of a “tariff year” has no legal validity, and I listed a number of points that corroborate that submission. I notice that you have not dealt with any of these points at all.

a. As this is of such fundamental importance would you please state upon what basis you were able to reject my submission?

b. Does your rejection of my submission mean that you consider the “tariff year” as applied by npower to be legally valid and therefore contractually binding upon npower’s affected gas customers (despite the weight of evidence to the contrary)?

3. As regards the “compensation” defence; in my complaint document (Part 1) under that heading, I submitted that npower’s claim (that its reduction in the price of its low tier units on 1st May 2007 was “compensation”) has no legal validity, and I listed a number of points that corroborate that submission. I notice that you have not dealt with any of these points at all.

a. As this is of such fundamental importance would you please state upon what basis you were able to reject my submission (despite the weight of evidence in support of it)?

b. Since making my complaint I have discovered a further corroborative fact in support of my submission and rebutting the presumption that… as the said price reduction and gas ‘sculpting’ change occurred on the same day (1st May 2007) they were linked (and that the former was therefore a compensatory measure)… namely that on 1st October, 2004, npower made a similar change to its gas ‘sculpting’ and a price change on the same day. However, in that case the price change cannot be said to be a compensatory measure because on that occasion the price change was an increase (even though the sculpting change was a hidden detriment to affected customers). In other words the fact that the two events occurred on the same day was merely a coincidence - no more that that.

i. Were you aware of this double change in 2004?

ii. Was the Ofgem investigating team aware of it?

4. In Part 1 of my complaint document I began by explaining the mutually contradictory nature of the two said defences put forward by npower, and I submitted that at least one of them therefore had to be false. You have responded by saying “I do not consider this to be the case”.

a. Are you saying that you do not consider these two defences to be mutually contradictory or are you saying that, even if they are mutually contradictory, you do not consider that this makes either of them a false submission?

b. If your reply to question 4.a above is that you do not consider the two said defences to be mutually contradictory can you please explain

i. If the “tariff year” had any legal validity, why would it have been necessary for npower to give away millions of pounds in unnecessary compensation?

ii. Did Ofgem bother to put this question to npower, and if so what was the reply?

iii. If the said price reduction of low tier gas units had genuinely been intended to compensate affected customers, why didn’t npower simply inform its customers of this fact at the time (and when customers complained)?

iv. Did Ofgem bother to put this question to npower, and if so what was the reply?

End of Part 1 (of 3)

Sterling

Part 2 (of 3)…..my letter to Ofgem continued


c. If your reply to question 4.a. above is that… even if the two said defences are mutually contradictory you do not consider that this makes either of them a false submission, can you please explain


i. How do you consider this would be possible?


ii. Did Ofgem bother to put this question to npower, and if so what was the reply?


5. I am a little confused by the first three paragraphs immediately under the heading “Part 2” of your letter. I say that firstly because your quotation from my complaint is actually from Part 1 of my complaint document (item ‘e’ of section 1) rather than from Part 2, and secondly because although you write that “…npower stated that in its view the use of a tariff year was a common industry term…”, you follow this by confirming that no definition… or explanation [of any kind whatever]… of the so-called tariff year was ever given by npower to its customers.


a. I am not sure what point you are making in your said three paragraphs. Can you please explain?


b. Bearing in mind that this was a key issue, what evidence did npower offer Ofgem to verify its claim that “…the use of a tariff year was a common industry term…”?


c. If no such evidence was offered by npower


i. Did Ofgem ask for any such evidence (and if so what did it receive)?


ii. Did Ofgem make any effort to independently verify npower’s claim that the use of a tariff year was a common industry term, and if so what was the result?


d. How could npower’s affected gas customers be expected to know of the tariff year concept if npower confirms it never defined or explained it to them?


e. How could the tariff year concept form part of npower’s consumer terms and conditions or in any other way be legally binding upon its customers?


f. Did Ofgem put the above two questions to npower?


g. If your reply to question 2.b. earlier is in the affirmative, then would you please explain how could Ofgem (as both regulator and investigator) possibly regard the tariff year as a legally valid term of customers’ contracts?


h. If you are unable to answer the above question, then upon what possible basis did Ofgem accept that npower’s customers were bound by it?


i. If customers were not bound by it then how could Ofgem accept it as a valid defence?


6. I turn now to the paragraph immediately under the above-mentioned three paragraphs, and which begins with the words “You also assert…”


a. I am happy to assume that you are correct when you say in effect that (under the Enterprise Act as such) a court can only order a company to stop an action rather than order it to make restitution to its customers, but are you saying that the High Court does not have power to make a restitution order generally?


b. Are you therefore saying that even if npower had no defence whatever to the Energywatch complaint, there was nothing Ofgem could do to directly or indirectly oblige npower to make full restitution to all of its affected customers?


7. If your reply to question 6.b. is that there was nothing Ofgem could do directly or indirectly to oblige npower to make full restitution to all of its affected customers, then would you please answer the following questions that deal with possible examples of how leverage might have been exerted by Ofgem upon npower to achieve its agreement to fully repay its affected customers


a. For example, in item g of section 2 of Part 1 of my complaint document, I included the words …” I believe that even the comparison websites had no idea of the true cost of gas from npower (on tariffs with a two tier structure) as a result of the two said changes in 2007. Consequently, the calculations performed by such websites as to the cost of npower’s gas over a year, gave answers that were significantly lower than was actually the case. This can of course be checked by Ofgem. I submit that npower must have been well aware of what was happening, and nevertheless allowed this misrepresentation to continue unchecked.”


If I am correct in this submission then


i. Do you consider this would be in breach of the Trade Descriptions Act (by allowing an ongoing false description of the price)?


ii. In that event, would that not have been a criminal offence under that Act?


iii. I understand that such a criminal offence carries the possibility of imprisonment as well as, or in addition to, a heavy fine. Therefore could not Ofgem have used this fact as leverage to oblige npower to agree to make full restitution to all of its affected customers as a satisfactory alternative to bringing a criminal prosecution?


iv. Did Ofgem consider this course of action?


End of Part 2 (of 3)

Sterling

Part 3 (of 3)…..My letter to Ofgem’s continued

b. For example (and if npower had no acceptable defence whatever to the Energywatch complaint)

i. Would it not have been possible for Ofgem to say to npower that unless it agreed to make full restitution etc, Ofgem would arrange for (or support) a class action to be brought against npower by its affected customers in which a court order for full restitution (or similar) might be obtained (at much greater cost to npower in the long run)?

ii. Was Ofgem aware at the time of the investigation that at least one npower customer had actually taken npower to court and won his case against npower and obtained an order for full restitution plus costs?

iii. Was Ofgem aware that npower chose not to appeal that case and further, opted to settle all similar claims before they went to a court hearing?

c. Would it not have been possible for Ofgem to say to npower that unless it agreed to make full restitution etc, Ofgem would take the necessary steps to obtain the withdrawal of npower’s gas supply licence? After all, the total consumer detriment here is of the order of £100 million.

d. If the maximum possible fine (as mentioned in question 1.c. above) is large enough, could this threat not have been applied as leverage in negotiations with npower? I have in mind the case where a water company was fined around thirty five million pounds for giving false information on water leaks to its regulator.

8. I refer to your statement on page 3 of your letter in which you say
“You conclude by stating that the Energywatch complaint must be reinvestigated. I have considered this, but I am not clear what benefit there would be to consumers in doing so as Ofgem would still not have the ability to impose a financial penalty on npower or to require it to pay compensation to customers.”

For the avoidance of any possible doubt are you saying here (as you appeared to be saying earlier in your letter – see question 6.b) that

a. even if npower had offered no excuse at all to Ofgem for overcharging its customers in the way complained of by Energywatch

i. there was nothing Ofgem could do for npower’s affected customers in terms of getting their money paid back to them?

ii. there was no sanction of any kind that Ofgem could impose upon npower to achieve that effect?

b. that if npower (or any other supply company) pulled a similar stunt in future there would be nothing Ofgem could do about it?

9. If in replying to question 8.a. (i. & ii.) and 8.b. above you say that nothing could be done etc, then

a. Why didn’t Ofgem inform Energywatch and the public immediately the complaint was made?

b. Do you accept that Ofgem’s failure to do so caused unnecessary delay to the public who need not have waited nearly a year for Ofgem’s deliberations in the erroneous belief that Ofgem would (or even could) order npower to put matters right?

c. Why didn’t Ofgem apply to the Government or Parliament for an increase in its powers upon receiving the Energywatch complaint (or as the investigation unfolded)?

d. Do you consider that the present powers available to Ofgem render it fit for purpose in this type of situation?

10. Was Energywatch right to make its complaint to Ofgem or should it have been made to some other body such as the Office of Fair Trading?

11. I notice that you have not dealt with paragraph 51 of Part 2 of my complaint document, in particular sub-paragraph ‘c’. May I please have your response regarding this point of fundamental importance?

For the record please be aware that I have forwarded a copy of this emailed letter to my MP (together with your letter of 26th May), as he has already requested that I provide him with copies of my correspondence in this matter.

Please also be aware that I reserve the right to forward a copy of the same to the Energy and Climate Change Committee of the House of Commons, which has of course taken over responsibility of scrutinising Ofgem from the Business and Enterprise Committee, or to place the same in the public domain.

I look forward to hearing from you in early course.

Yours sincerely

[Sterling]