Earlier this week Ofgem announced that it has banned Iresa Energy – Britain’s cheapest energy supplier – from taking on any more customers.
The move comes after numerous complaints about Iresa Energy over the past year. The Nottinghamshire-based company regularly appears on best buy tables for offering some of the cheapest deals around, but its customer service is dire.
Complaints range from a 40-minute average wait for answering calls to repeatedly producing incorrect bills.
The firm is also being investigated by Ofgem for treating customers unfairly in its call-handling and complaints process.
It’s a remarkable move for the regulator to step in and actually stop a company from taking on new customers. Normally, the regulators talk a good fight but there is very little action.
But, in this case not only has Ofgem banned Iresa Energy from taking on any new customers until it has dealt with its backlog of complaints. It is also threatening to shut the company down completely if it doesn’t improve its customer service standards.
Ofgem's decision to use its teeth comes at a time when the energy market is facing a crisis. The Times reported last month that several small providers may be on the brink of collapse as they struggle to cope with rising costs as wholesale energy prices rise.
"At the moment you can set up a company with a balance sheet of just £1 of capital. You can have no investors and no equity, but you can keep running at a loss in the expectation that your unprofitable customers, who you have enticed through cut-price fixed-term deals, will eventually lapse on to your most expensive tariffs," Joe Malinowski of the Energy Shop, a price comparison website, told The Times. "This is a pretty tenuous business model in my view."
One company that is facing problems is Toto Energy. It is being investigated by Ofgem after arranging to hand over around 16,000 of its customers to Utilita Energy. The customers, who are all on pre-payment meters, were given no choice about being transferred.
A few years ago, small energy firms appeared as saviours, ready to help us all escape the iron-grip the Big Six energy firms had on the household energy market. But, a lack of regulation has meant firms with little investment have taken on tens of thousands of customers without the infrastructure to manage them. In this environment, consumers need a watchdog that is prepared to act to protect them.
Hopefully, Ofgem’s action against Iresa Energy is a sign that the watchdog is prepared to take action and shut companies down if they fail to meet basic customer service standards.
That means not just going after the small firms, but also taking on the Big Six and taking action against them when they fall short of the bare minimum standards of customer service too.
Who knows, maybe if Ofgem starts actually taking action rather than merely sabre-rattling, other regulators could follow suit and we could see Ofcom tackle the repeated price increases happening in the broadband market, or The Pensions Regulator not turning a blind eye to pension deficits.
This country has an awful lot of regulators who do very little; I’m hoping Ofgem may have just shown that a watchdog that bites is far better at protecting consumers than one that simply sleeps in its kennel.
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