On November 9, UK regulator Ofgem reported securing £7 million from E.ON as the supplier had failed in its duty to supply relevant business customers through advanced electricity meters by the April 2014 deadline.
This was widely reported in the popular press, and in some energy press, as a ‘fine’. In fact the fine was just a token £2 and the balance £6,999,998 was a redress, which is not the same thing, even though involving a substantial payout from the company’s coffers. A ‘fine’ is money paid directly to the British Treasury, whereas a ‘redress’ is a payment arranged between the company and Ofgem that is made towards actions to directly benefit consumers.
E.ON redress to support business energy saving
In this case E.ON’s (almost) £7 million redress payment goes to the Carbon Trust, which will use it to fund a two-year programme of delivery of energy saving audits, energy savings advice and installation of energy efficiency measures for small and medium sized businesses across the country.
The reason: since the advanced meter rollout scheme for medium and larger businesses began in 2009 E.ON had installed advanced meters for only 64.4% of its approximately 20,000 qualifying customers. According to Ofgem, E.ON was unable to demonstrate that it took all reasonable steps to fulfil the required meter rollout. The supplier had also gained financially by avoiding the costs of installing and operating the new meters.
Advanced meter investigations continue
Ofgem continues that since April 2014, E.ON has made some further progress but if it fails to meet an (unspecified) interim target within the next year, it will have to pay a further £7 million in redress. And if still not compliant after a further six months, the company may face a sales ban preventing it from taking on new business customers until able to supply them through an advanced meter.
The missed rollout deadlines of other suppliers, particularly British Gas and npower, are also still under investigation. Ofgem’s figures are that by April 2014 the rollout was 75% complete for electricity and 86% complete for gas, out of a total 155,000 electricity meters and 28,000 gas meters to be upgraded or replaced.
Fines and redresses – gains and losses
A perusal of Ofgem data shows that fines and redresses against energy suppliers in UK are a lucrative source of money. Since 2010 to date fines have totaled over £52.1 million and redresses almost £124.5 million.
Conversely they are a loss to the companies and ultimately their customers. For example E.ON is no stranger to such penalties: In May this year E.ON paid a £7.75 million redress (and £1 fine) for tariff breaches. In July 2014 the supplier paid a £12 million redress (and £1 fine) for mis-selling. Other penalties in 2013 and 2012 totalled £4.7 million.
British Gas is also a payer of significant penalties with fines totaling £3.3 million and redresses totaling £25.3 million since 2010 (respectively £4.3 million and £30.4 million if British Gas Business is also included). However, the largest single penalty in this period was to Drax, with a £5 million fine and £23 million in redress for failing to meet carbon emission reduction obligations by promoting qualifying actions to domestic energy users.
Missed deadlines are one of the more common reasons for penalties from Ofgem. Others include misreporting, switching practices, incorrect billing and complaints handling - ultimately all relating to common business practices. While the redress penalties do benefit the energy sector rather than being absorbed into general funds, which is the goal of Ofgem to reach such agreements, nevertheless that they are being paid should be of concern not only to the suppliers but also to the customers whose energy payments fund them.