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The Energy Gangsters

24 March, 2014 | Posted By: Alan Waring

The Energy Gangsters

The Risk Watch Column
By Dr Alan Waring

European governments in recent years have embraced an acceptance that the valid role of government excludes running businesses. Privatisation is meant to shed excess labour and unwarranted costs that so typically afflict public sector companies. The Electricity Authority of Cyprus (EAC), for example, has been especially profligate over many years, while at the same time inflicting on consumers the most exorbitant pricing in the EU. Only recently, a parliamentary committee has demanded answers from EAC on such failings.
The commitment of the government, as required by the EU bailout memorandum in March 2013, is to privatise EAC and other named state-owned entities and the regulations for such privatisation are now in progress. Things are looking positive. However, despite all the obvious benefits, is there a downside? Is all that glitters necessarily gold? To answer these questions, perhaps we should examine how the UK energy sector has fared since privatisation in the 1980s and 1990s.

The UK Experience
The privatisation and deregulation of the UK energy market has undoubtedly introduced both much-needed efficiency into the individual companies as well as competition in the market. Customers can now choose quite freely their suppliers of gas and electricity from a range of providers.
Deregulation does not mean ‘no regulation’. Ofgem, the government’s regulator for the energy sector, has been established to ensure that all energy suppliers abide by a common set of rules designed to offer fair pricing and fair dealing with customers. However, for years the energy companies have shown a wilful disregard of the Ofgem rules on a mammoth scale. The ‘big six’ UK energy companies racked up a total of 5.5 mln registered complaints from customers in 2013 or some 15,000 per day. Despite Ofgem issuing scathing public reports about individual companies and hitting them with multi-million pound fines, they just seem to treat such oversight with contempt and refuse to change their bad ways. Perhaps the only thing that might curb their rapacious behaviour is if Ofgem were to impose fines in the tens and hundreds of millions of pounds and, in particularly flagrant cases, demand that companies sack their Chief Executives if not entire boards.
Two of the most persistent and widespread abuses continue to be ‘mis-selling’ involving a variety of deceptions and downright lies designed to induce a new customer to sign up, and the artificial inflation of bills to customers. Having perpetrated such abuses, the companies then place as many obstacles as possible to deter and hopefully stop the customer from obtaining redress. This is despite the clear Ofgem rules on the processing of customer complaints and the companies themselves boasting their supposed adherence to these rules. They behave more like organised criminal fraudsters than respectable businesses - ‘the unacceptable face of modern British capitalism’. Wilful deception and a wilful disregard for the Ofgem rules seems to be the hallmark of the UK energy companies, as the following recent cases reported to Risk Watch demonstrate.

Case 1: The E.ON Gang
On taking over a UK property, Mr X decided to replace the energy supplier E.ON by another (Southern Electric/SSE). He accepted that there would be a changeover period of a few weeks during which he would still be responsible for a residual E.ON bill. Meter readings were taken on the date of occupancy and E.ON were notified.
Subsequently, Mr X received two E.ON bills based on their own estimates of residual consumption, which were grossly inflated and totalled £306.86. In order to raise a dispute and correct the erroneous bills, Mr X wrote and sent by recorded delivery a detailed letter on 6 Feb 2014 to E.ON’s Customer Relationship Manager Mr Andrew Gambrill, and provided a revised calculation of consumption costs based on his own meter readings. He also enclosed a cheque for the revised amount of £195.92 as full and final settlement and requested written confirmation of either acceptance or rejection by E.ON.
His cheque for £195.92 was cleared through his bank account shortly thereafter but he did not receive a reply from Mr Gambrill or from any other E.ON executive.
To his horror, weeks later he received a Final Demand notice from E.ON for £110.94, the difference between their inflated total and his revised total of £195.92. There was no accompanying letter or reference to the fact that he had already registered the bill with Mr Gambrill as being in dispute. Further, the Final Demand letter included a specific threat of legal action for recovery and a very menacing reference to Mr X’s name being put on a credit blacklist.
As E.ON seemed to be deliberately ignoring the fact that its bill was in dispute and was resorting to threats and intimidation, Mr X decided to complain directly to the E.ON (UK) Chief Executive, Mr Tony Cocker. Thus far, Mr X has not received a reply from Mr Cocker.
E.ON had not followed a single one of the key commitments of its own statement ‘Steps to Resolve Your Complaint’ based on the Ofgem requirements (no response whatsoever, no communication from their Resolution Team, no internal review). Mr X has now referred the whole matter as a complaint to the Energy Ombudsman.
In 2012, E.ON was forced by Ofgem to return £1.4 mln to customers who were charged exit penalties when they opted to switch to other suppliers. In 2014, Mr Cocker obviously continues to think that he and his gang are beyond effective control and are untouchable in any significant sense.

Case 2: The SSE Gang
Having dumped E.ON, the same Mr X took up a 2-year Fixed Price Contract for gas and electricity supplies from Southern Electric/SSE, which he had been offered from an SSE call centre and had signed up on-line. He received promptly by post the SSE Confirmation of Contract, 2-Year Fixed Price Terms and Conditions and the General Terms & Conditions of Contract for the Supply of Electricity and/or Gas.
A few weeks later, Mr X received a bill statement for an additional £52.51 for the period 7 January 2014 to 23 January 2014, on top of the agreed fixed monthly bill of £73. If the price had been fixed, how could SSE possibly be charging extra, he wondered?
As Mr X pointed out to the SSE Head of Customer Services, the various SSE documents mentioned only ‘price’ and ‘fixed price’ and not ‘unit price’ which was now belatedly their declared meaning. There is a huge difference between ‘fixed price’ and ‘fixed unit price’ Such ambiguity appears to be a calculated deception by SSE designed to induce a prospective customer to sign a contract which, if they had been provided with such clarification, they might not otherwise have done. Such inducement by deception is directly contrary to the EU Unfair Commercial Practices Directive.
SSE refused to acknowledge that there is a material difference in meaning between ‘fixed price’ and ‘fixed unit price’, so Mr X has now lodged a complaint with the Energy Ombudsman, not just for himself but also for millions of other customers similarly duped. It should be noted that in April 2013, SSE was fined a record £10.5 mln by Ofgem for mis-selling products and lying to customers about tariffs. Ofgem reported that there were ‘failures at every stage of the sales process’ and that SSE had ‘undermined trust in the energy supply industry’. Ofgem made clear that the failings were in SSE management. From Mr X’s bad experience, it looks like the SSE Chief Executive Mr Alistair Phillips-Davies is determined not to change the rotten system and culture within his company.

Conclusion
The small Cyprus population makes a deregulated competitive market not viable, unlike the UK. However, a privatised EAC is essential to secure proper labour practices, cost control, and efficiency. Nevertheless, there are lessons from ‘the unacceptable face of modern British capitalism’. It will be crucial to ensure we don’t simply replace one nightmare by a different one. Robust control, accountability and remedies to protect energy customers will be vital.

Dr Alan Waring is an international risk management consultant with extensive experience in Europe, Asia and the Middle East with industrial, commercial and governmental clients. His latest book Corporate Risk and Governance is at www.gowerpublishing.com/isbn/9781409448365 . Contact waringa@cytanet.com.cy .

©2014 Alan Waring