Direct Debit Arrangements

Document Type: Decision Document

Ref: 119/09

Overview:

Following concerns raised at the end of last year Ofgem reviewed suppliers' direct debit

arrangements. Ofgem found no evidence of unjustified increases in direct debits nor of

systematic errors. However it was clear that supplier processes and communications could

be improved. We therefore set out what we saw as best practice and sought views on a

potential licence condition. Following our report suppliers have taken action to improve their

service but we are concerned that with the prospect of continuing volatile prices some

suppliers may not be doing enough and we believe it is important we have the powers to

act if problems recur.

The Authority has therefore decided to introduce a new licence condition requiring Domestic

Customers‟ direct debit payment levels to be based on the best available information and to

be clearly explained to Domestic Customers. Any credits built up must not be unreasonably

withheld.

We invite any final representations on the new licence condition and seek the consent of

suppliers to make the modifications. Subject to responses, we intend to introduce the new

licence conditions to take effect from 18 January 2010. Responses are requested by

30 October 2009.

Date of Publication: 2 October 2009

Target Audience: Industry, consumer bodies, consumers, Government,

Parliament, and any other interested parties.

Contact name and details: Andy Burgess, Head of Enforcement & Competition Policy

Tel: 020 7901 7159

Email: [email protected]

Team: Enforcement and Competition Policy

Office of Gas and Electricity Markets

Direct Debit Arrangements October 2009

 Following concerns raised at the end of 2008, Ofgem initiated a review of

suppliers' direct debit arrangements. In March 2009, we set out our initial

findings and identified for consultation possible measures to tackle the issues

raised. In light of that consultation, this document sets out Ofgem‟s views on the

responses and Ofgem‟s proposed way forward.

 Direct Debit Report - published 27 March 2009

http://www.ofgem.gov.uk/Pages/MoreInformation.aspx?docid=2&refer=Consume

rs/CCI

Context

Associated Documents

Office of Gas and Electricity Markets

Direct Debit Arrangements October 2009

Table of Contents

Summary ........................................................................................... 1

Our March 2009 Report .............................................................................. 1

Proposed licence condition .......................................................................... 1

1. Introduction .................................................................................. 3

Investigation ................................................................................................ 3

Report and Consultation ............................................................................. 4

Consultation Responses .............................................................................. 4

2. Views on our findings .................................................................... 5

3. Views on what action we should take ............................................ 9

Question 1 – Is a licence condition needed? .................................................. 9

Question 2 – Can the problems identified be addressed through self-regulation?

............................................................................................................. 11

Conclusion .............................................................................................. 12

4. Views on the nature and scope of any new licence obligations .... 13

Question 1 – What form should the new licence condition take? .................... 13

Links with the Probe ................................................................................ 15

Question 2 – What should be the scope of application of the licence conditions?

............................................................................................................. 16

Question 3 – When should any licence condition which is introduced be

implemented? ......................................................................................... 17

5. Next Steps ................................................................................... 19

Legal framework for making the modifications ................................................ 19

Appendices ...................................................................................... 20

Appendix 1 - Consultation Questions ............................................... 21

List of Respondees ...................................................................................... 22

Summary of Responses ............................................................................... 22

Appendix 2 – The Licence Condition Options ................................... 23

Option A ................................................................................................. 23

Option B ................................................................................................. 23

Option C ................................................................................................. 23

Appendix 3 – Additional Elements of Best Practice Suggested by

the Respondents .............................................................................. 24

Appendix 4 - Notice of Proposed Modification to Electricity Supply

Licence Standard Conditions ............................................................ 25

Appendix 5 - Notice of Proposed Modification to Gas Supply Licence

Standard Conditions ........................................................................ 28

Appendix 6 – The Authority’s Powers and Duties ............................ 31

Appendix 7 - Glossary ...................................................................... 33

Appendix 8 - Feedback Questionnaire ............................................. 34

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Direct Debit Arrangements October 2009

Summary

Our March 2009 Report

Monthly direct debits are an important way of paying for energy. For 14.7 million

consumers who use direct debits, they allow the cost of energy to be spread across a

year and are often cheaper than payment by other means.

Towards the end of 2008, a number of concerns were being expressed about direct

debit payments and whether the increases that many customers were experiencing

were justified. As a consequence we launched an investigation into suppliers‟ direct

debit arrangements. Through our investigation we found no evidence of a deliberate

strategy by any supplier to increase payment levels to improve cash flow and no

evidence of systematic errors in the calculation of direct debit payments. However,

we identified a number of ways in which suppliers' processes could be improved to

minimise unnecessary fluctuations in payment levels and improve communications.

We published our findings in March 2009 and set out what we considered to be best

practice in all the areas where we found problems. We also sought views on whether

a licence condition was needed to remedy the weaknesses we had found in suppliers‟

direct debit arrangements and reinforce the need for direct debits to work better or

whether suppliers could deliver the improvements we had identified through self-

regulation.

We are pleased that the suppliers recognised the validity of the issues raised in our

Report and have taken positive steps to address these problems. In particular we

note that British Gas have made a significant effort to introduce changes into its

direct debit arrangements which had previously been the source of the highest level

of complaints. Further we welcome the fact that our elements of best practice have

generally been well received and that they appear to have been used by many

suppliers as a starting point for altering their direct debit arrangements.

Proposed licence condition

Nevertheless, following consideration of the responses, the Authority has come to the

conclusion that new licence conditions are required to address the weaknesses in the

Suppliers‟ direct debit arrangements identified in our Report and that it would be

inappropriate to leave consumers without the protection of a licence condition in the

absence of a clear indication that self-regulation would deliver. In particular, we note

that it took our investigation and Report to prompt real changes amongst the

suppliers and that there are still weaknesses in the approaches of some suppliers.

The introduction of a new licence condition is of particular importance in view of the

fact that a number of vulnerable consumers use direct debit and find it difficult to

cope with unexpected increases in their bills. With the credit crunch continuing we

are committed to addressing issues which lead to an increased risk of debt.

Moreover, with price volatility likely to continue this cannot be dismissed as a one-off

issue. We have therefore concluded that the introduction of a new licence condition

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Direct Debit Arrangements October 2009

on direct debits is necessary to protect the interests of existing and future

consumers.

We consider that a licence condition based on our proposed Option B (a high level

obligation) would be the most appropriate as it is not overly prescriptive. This allows

suppliers to continue to innovate in this area and have flexibility in how they comply

with the obligations. It also avoids the danger of the licence condition being too

narrow to cover unanticipated problems or being rendered obsolete by changing

circumstances, enabling us to intervene when necessary to protect consumers.

We therefore think that there are real benefits to having a more broadly drafted

licence condition which focuses on securing outcomes for consumers rather than

specifying mechanisms that should be used. This is consistent with the approach we

have adopted to the new standards of conduct we are introducing where we focus on

principles rather than prescriptive requirements. The themes in these standards of

suppliers providing clear explanations to customers and of acting promptly and

courteously apply equally to direct debit arrangements.

We consulted suppliers and consumer groups on the detailed drafting of such a

licence condition informally over the summer and took account of the comments

made. This document contains the statutory consultation on modifications to supply

licences. We are proposing that a licence condition imposing the following obligations

should be introduced:

 the licensee must take all reasonable steps to ensure that domestic customers‟

direct debit payment levels are based on the best available information, including

the quantity of electricity or gas supplied or to be supplied to the domestic

customer;

 the licensee must explain clearly the basis for the domestic customer‟s direct

debit payment level to the customer; and

 the licensee must refund credit which has accumulated in a domestic customer‟s

account at the request of the domestic customer unless there are reasonable

grounds for withholding that credit. The reasons for withholding that credit must

be conveyed to the domestic customer (who will then be able to challenge this if

they consider it to be wrong).

We do not think that the new licence condition should apply to business customers at

this stage as we did not analyse the suppliers‟ direct debit arrangements in relation

to those customers in our Report. However, we have concluded that the new licence

conditions should be imposed on all suppliers regardless of their size. This is because

we do not anticipate that the obligations will place an undue burden on smaller

suppliers and we do not think customers of smaller suppliers should experience lower

standards of protection than other customers.

Subject to responses, we intend the new licence conditions to be introduced and

have effect by 18 January 2010, to allow time for implementation but hope that

many suppliers will be able to introduce any necessary changes before then where

they are already working to implement the best practice recommendations from our

Report.

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Direct Debit Arrangements October 2009

1. Introduction

Investigation

1.1. Monthly direct debits are an important way of paying for energy. For 14.7 million

domestic consumers who use direct debits, they allow the cost of energy to be

spread across a year and are often cheaper than payment by other means. For

suppliers, compared to quarterly billing in arrears, direct debit payment methods

provide greater certainty and immediacy of payment and some associated savings.

This is recognised by the widespread offering of discounts for payment by direct

debit. There is therefore mutual interest in making direct debit arrangements work

effectively.

1.2. Towards the end of 2008, a number of concerns were being expressed about

direct debit payments and what were seen as unjustified increases in the payments

demanded by suppliers, even where customers were in significant credit. As a

consequence we launched an investigation into suppliers‟ direct debit arrangements.

1.3. Through our investigation we found no evidence of a deliberate strategy by any

supplier to increase cash flow through unjustified increases in direct debits and no

evidence of systematic errors in the calculation of direct debit payments. However, in

some cases, suppliers' processes resulted in very significant increases in payments

and large credit / debit balances.

1.4. At the heart of the problem was a lack of transparency and poor communication

by suppliers. We found that direct debit arrangements were opaque and the precise

way in which they operated was unclear. The explanation given to customers by

most suppliers when they were notified of a revised payment was wholly inadequate.

Suppliers should have been able to explain to consumers on an individual basis how

they arrived at the monthly direct debit payments and most could not. Where

customers contacted customer service, staff often could not explain how the

payment was calculated and a revised payment level was negotiated on the basis of

no understanding from the customer of the implications. There was some evidence of

payments being lowered in response to a call from a customer but then increased

significantly a few months later without adequate explanation. There were also

significant differences and a lack of clarity in the practices of the suppliers on

refunding credits.

1.5. Where suppliers delayed making a reassessment until some time after a price

increase and, in particular, if they then required repayment of any debit balance over

a short period, there could be very significant swings in the direct debit payment

levels. This presented a particular problem for customers on low income.

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Direct Debit Arrangements October 2009

Report and Consultation

1.6. We published our findings in March 2009 in the Direct Debit Arrangements

Report and Consultation (the “Report”) and set out what we considered to be best

practice in all the areas where we found problems. We asked stakeholders to

comment on our findings and the elements of best practice we had identified,

including whether there were any other elements of best practice we should

consider.

1.7. We also sought views on whether a licence condition was needed to remedy the

weaknesses we had found in suppliers‟ direct debit arrangements or whether

suppliers could deliver the improvements we had identified as necessary through

self-regulation. We also asked, if we were to introduce a new licence condition, which

of the three models we identified would be preferred and whether the licence

condition should apply to small business customers and be imposed on all suppliers

regardless of their size. Finally, we requested comments on what stakeholders felt

would be a realistic timescale for implementation of these changes.

Consultation Responses

1.8. We received 20 responses to our consultation. A list of those who responded is

set out in Appendix 1.

 The respondents broadly agreed with our findings and the elements of best

practice that we had identified. The additional elements of best practice which

respondents considered we should take into account are set out in Appendix 3.

 Four consumer groups and one supplier supported the introduction of new licence

conditions to address the problems we had identified. Nine suppliers objected to

the introduction of any new licence conditions.

 Four consumer groups said that self-regulation was not an appropriate response

in this case and three small suppliers. Eight industry respondents asserted that

the issues identified could be dealt with by self-regulation.

 Most of the suppliers declined to state which licence condition option they

preferred but overall Option B (a high level obligation) received the greatest

support.

 Eight industry respondents said that small business customers should not be

covered by any new licence condition and three consumers did not comment on

this matter. Six respondents were in favour of any new licence condition we

introduced covering small business customers.

 Four respondents said if an obligation was adopted it should be imposed on all

suppliers irrespective of their size. One consumer group said that any obligation

adopted should also cover small business customers but that an impact

assessment would need to be carried out first.

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Direct Debit Arrangements October 2009

2. Views on our findings

We are pleased that there was broad support for our findings and for the elements of

best practice we identified. A number of suppliers are already taking steps to

implement the changes we suggested.

Question 1 – Was the analysis of the issues correct?

2.1. In chapter 2 of the Report we set out the conclusions we had drawn from our

investigation into suppliers' direct debits arrangements. In particular, we found that

there was no deliberate strategy by suppliers to apply unjustified increases to bolster

their cash flows nor of systematic errors. However, suppliers' processes did lead to

large swings in payment levels and debits/credits at a time of volatile prices and

suppliers' communication of changes was very poor. We asked if stakeholders agreed

with our analysis of the issues.

Respondents’ Views

2.2. All the respondents broadly agreed with our analysis of the issues. One small

supplier commented that the analysis was based on the direct debit arrangements of

the „big 6‟ suppliers. Two other suppliers emphasised that prior to late 2008 there

had been noticeably fewer complaints in relation to direct debit schemes.

Ofgem’s View

2.3. We are pleased that suppliers have recognised the validity of the issues raised in

our Report and have taken positive steps to address these problems. We accept that

there were many more direct debit complaints after late 2008 when, among other

factors, the fluctuation in energy prices exacerbated problems with administering

direct debit schemes. However we think that the external factors merely highlighted

the systematic weaknesses in suppliers‟ direct debit arrangements and cannot be

relied on to detract from the need for suppliers to reform their direct debit schemes.

Furthermore we think that price volatility is likely to continue for some time so the

underlying issue will not go away.

Question 2 – Do you agree with our elements of best practice?

2.4. In light of some of the failings we identified in the suppliers' direct debit

arrangements we set out certain elements of best practice which suppliers should be

looking to adopt as soon as possible. In particular we made best practice

recommendations in relation to:

Action to ensure payments are set at an appropriate level

 suppliers should ensure that reassessments are carried out on a timely basis;

 suppliers should provide flexibility on the timescales over which any outstanding

amounts are recovered;

 suppliers should ensure they have regular actual meter readings and encourage

meter readings by customers;

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Direct Debit Arrangements October 2009

 suppliers should look at ways to get more robust usage information for new

customers.

Action to improve transparency and communication

 suppliers should provide individual explanations to customers of the basis on

which their direct debit payments have been reassessed;

 suppliers should provide clear explanations of how direct debit works, including

when customers move onto direct debit;

 when notifying customers of revised payment levels, suppliers should make clear

that customers can contact them to discuss any concerns;

 customer service staff should have access to the information necessary to enable

them to explain clearly to customers the implications of any changes to their

direct debit payments.

Refunds of credit

 suppliers should ensure that credits are not unreasonably withheld;

 suppliers should set out clearly what their refund policies are.

2.5. We asked stakeholders if they agreed with the elements of best practice we had

identified.

Respondents’ Views

2.6. The respondents broadly agreed with the elements of best practice that we set

out. In addition a number of suppliers told us they were taking steps to implement

many of the reforms we had suggested.

2.7. Three industry respondents raised concerns that some of the best practice

recommendations covered areas which were already being addressed as part of

Ofgem‟s Energy Supply Probe and there might be some duplication of proposals.

Another issue raised by three industry respondents was that some of the elements of

best practice would require changes to the suppliers‟ IT systems which would be

costly. Two industry respondents said that the costs would be disproportionate to the

benefit gained by the consumer.

2.8. Furthermore two industry respondents said that specifying the remedial action

that should be taken by the suppliers in too much detail would interfere with

companies being able to innovate and differentiate their services in the competitive

market. One industry respondent commented that some reforms, such as suppliers

obtaining more meter readings, would require action to be taken by customers and

education would be important to facilitate this.

2.9. Two industry respondents raised concerns on our recommendation that all

discussions between a supplier and a customer concerning the basis of a customer‟s

direct debit payments, or the implications of a reassessment of their direct debit

payments, should be followed up in writing. The criticism levelled was that it was not

in line with Ofgem‟s Consumer Complaint Handling Standards Guidelines which allow

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Direct Debit Arrangements October 2009

for consumer complaints to be processed orally or in writing according to the

customer‟s wishes.

Ofgem’s View

2.10. We welcome the fact that our elements of best practice have generally been

well received and that they appear to have been used by many suppliers as a

starting point for altering their direct debit arrangements.

2.11. We are aware that some of the issues covered in the Report are also being

looked at under the Energy Supply Probe and are conscious of the need to coordinate

our action. We comment further on this issue in Chapter 4.

2.12. We are alert to the fact that certain of the elements of best practice we have

suggested may require some suppliers to modify their IT systems and incur costs in

doing so. However, we note that the elements of best practice are not in themselves

mandatory.

2.13. In relation to the complaint that the elements of best practice are too

prescriptive we would note that they are not intended to be obligatory rules but

rather to give an indication of the aspects of performance that we would expect

suppliers to be focussing on. Suppliers are free to provide higher service standards to

consumers or to use innovative methods to provide the same levels of consumer

benefit to attract customers and thereby gain a competitive advantage. We do not

believe that our recommendations will prevent suppliers differentiating their services

in the market.

2.14. Finally, we do not think that our recommendation that all discussions between

a supplier and a customer concerning the basis of a customer‟s direct debit

payments, or the implications of a reassessment of their direct debit payments,

should be followed up in writing is inconsistent with Ofgem‟s Consumer Complaint

Handling Standards, where the choice lies with the consumer how they wish to

progress their complaint. Where the direct debit level is changed following a

customer service contact we would expect this to be confirmed in writing, in line with

the Direct Debit Guarantee scheme and believe that as a part of that customers

should be warned if, for example, there is a risk that their repayment level will need

to be reviewed again within a short period. However, we would note that this is only

a recommendation, not a mandatory requirement, and suppliers can determine what

actions are required to ensure customers fully understand what they have agreed to.

Question 3 – Recommendations of additional elements of best practice

2.15. We asked stakeholders whether there were any other elements of best practice

which they thought we ought to consider.

Respondents’ Views

2.16. Six respondents, including one supplier, made a number of suggestions which

are set out in the table in Appendix 3.

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Direct Debit Arrangements October 2009

Ofgem’s View

2.17. We are grateful to have received these proposals for additional best practice

recommendations. However we think some of the suggestions deal with issues that

have already been covered by our elements of best practice and others are too

detailed to be specified as best practice as they would restrict suppliers‟ ability to

respond in innovative ways to the issues raised. Nevertheless we think that suppliers

and the Energy Retail Association should examine the suggestions made to see

whether they would want to take any of the proposed changes further.

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Direct Debit Arrangements October 2009

3. Views on what action we should take

In our Report we sought views on whether a licence condition was needed or

whether the issues could be addressed through self-regulation. While suppliers

suggested that a licence condition was not necessary we remain of the view that this

is an important issue where regulatory protection is required.

Question 1 – Is a licence condition needed?

3.1. In chapter 3 of the Report we examined the possible action that could be taken

to address the issues identified in our investigation. We came to the conclusion that

further regulatory action might be required to ensure the interests of existing and

future consumers are protected. We asked stakeholders whether they thought a

licence condition was needed to tackle the problems we identified in suppliers‟ direct

debit arrangements.

Respondents’ Views

3.2. Four consumer groups and one small supplier supported the introduction of a

new licence condition to address the problems we had identified in our report. Nine

industry respondents did not support the introduction of a new licence condition.

3.3. A number of arguments were raised as to why a new licence condition should

not be introduced:

 as the Report found that there was no evidence of a deliberate strategy on the

part of suppliers to boost cash flow, and no evidence of systematic errors in the

suppliers‟ calculations, a licence condition was not required;

 a licence condition is unnecessary as suppliers are already responding to the

issues we raised in our Report and are amending their direct debit arrangements

accordingly;

 questions of customer service should be left to the market to decide as customers

will change to suppliers who provide better customer service;

 a new licence condition would restrict suppliers‟ ability to differentiate their

products and to innovate;

 a new licence condition is unnecessary because customers already have

protection in the form of the Complaint Handling Regulations, the Direct Debit

Guarantee and the Energy Ombudsman;

 a new licence condition would involve system changes and associated IT costs.

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Direct Debit Arrangements October 2009

Ofgem’s View

3.4. It is true that we found no evidence of a deliberate strategy on the part of

suppliers to boost cash flow and found no evidence of systematic errors in the

suppliers‟ calculations. Nevertheless we found significant weaknesses in suppliers‟

direct debit arrangements which caused serious problems for a number of customers.

We do not think the absence of evidence of „profiteering' means that there are not

important problems that the Authority needs to take action on to protect the

interests of existing and future consumers.

3.5. We are pleased that as a result of our Report all of the six main suppliers have

taken steps to improve their direct debit arrangements. However there was a range

of responses from suppliers and we are not convinced that sufficient progress has

been made across the industry as a whole to address the problems raised in our

report. In particular not all suppliers have signalled a willingness to move to provide

individual statements on a timely basis and we are not persuaded that simply dealing

with the issue through call centres as proposed by E.ON is appropriate for many

customers. As a consequence we consider it is necessary to take regulatory action to

respond to the issues that have emerged rather than rely entirely on suppliers to

self-regulate in the light of our Report.

3.6. We agree that it is important to allow the market to influence the development

of services provided by suppliers. However it should be noted that market pressures

were not sufficient to prevent the significant weaknesses we identified in the direct

debit arrangements of all the six main suppliers. Furthermore, as highlighted by

Consumer Focus, whilst poor customer service is a factor which may be taken into

account by customers when they are considering whether to change energy supplier

it is not a factor that always prompts customers to switch suppliers. We do not

believe we can rely on the market alone to improve direct debit standards.

3.7. Nevertheless we do accept that it is important for suppliers to be able to

differentiate their products in the market place by offering consumers better

standards of service and for suppliers to be able to adopt innovative approaches in

delivering those service standards. We believe that the introduction of a new licence

condition does not automatically undermine this and, provided the licence condition

is not overly prescriptive, suppliers would still able to differentiate their service.

3.8. We note the comments that have been made by some suppliers that a new

licence condition is unnecessary because customers already have protection in the

form of the Complaint Handling Regulations, the Direct Debit Guarantee or the

Energy Ombudsman. We do not find these arguments convincing. The Direct Debit

Guarantee provides very limited protection in relation to direct debits and does not

really tackle any of the issues raised in our Report. The Complaints Handling

Regulations and Energy Ombudsman provide support for individual consumers who

are prepared to pursue a complaint against their supplier but does not allow for

wider, coordinated action to be taken where a supplier‟s performance has affected a

large number of customers.

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Direct Debit Arrangements October 2009

3.9. We do not consider that the introduction of a new licence condition would usurp

the role of the Energy Ombudsman in any way. On the contrary we believe that a

new licence condition would assist the work of the Energy Ombudsman insofar as it

provides a standard in relation to direct debits against which he could evaluate a

particular supplier‟s conduct.

3.10. Finally the complaint was made by two industry respondents that requiring

suppliers to use specific methods to provide better consumer standards for direct

debits would involve IT systems changes which would be costly and disproportionate,

although no details were given of the level of costs involved. We think that the

significance of this concern will be reduced by adopting a licence condition which

allows suppliers the freedom to use different methods to achieve the level of

consumer protection set out in the licence condition. Furthermore we think that the

benefit to consumers justifies the possible costs that suppliers might incur in

amending their direct debit arrangements. Implementing these changes is

particularly important in light of the fact that 25% of fuel poor customers pay by

direct debit, with those on low incomes especially affected by large unexpected

changes in payment levels.

Question 2 – Can the problems identified be addressed through self-

regulation?

3.11. In addition, we asked stakeholders whether they considered that suppliers

could deliver the improvements we had identified through self-regulation.

Respondents’ Views

3.12. Four consumer groups said that self-regulation did not appear to be an

appropriate solution in this case. Three small suppliers and three consumers did not

comment on the issue. Eight industry respondents said that the issues identified in

the Report could be dealt with by self-regulation.

3.13. A number of the industry respondents who took the view that self-regulation

constituted a viable alternative to the introduction of a new licence condition said

that they were already in the process of amending their direct debit arrangements

and that we should allow them time to implement the proposed changes. It was

contended that we could set a date by which we would review what the suppliers had

done and if we were still not happy with what the suppliers had accomplished we

could revisit the possibility of a licence condition.

Ofgem’s View

3.14. We consider the issues raised in the report to be so important that we believe

that it would be inappropriate to leave consumers without the protection of a licence

condition in the absence of a clear indication that self-regulation would provide

sufficiently rigorous consumer standards. We are pleased that the six main suppliers

have taken positive steps to improve their direct debit arrangements and that the

Energy Retail Association (ERA) has been proactive in developing its commitment on

Direct Debit Arrangements which it has recently publicised. However, there are still

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Direct Debit Arrangements October 2009

weaknesses in the approaches of various suppliers and what has been proposed by

the ERA. In particular, the ERA code does not have any enforcement mechanism

associated with it. As a result, we are not confident that self-regulatory

arrangements would be sufficiently effective across the industry as a whole in

delivering the changes needed.

Conclusion

3.15. Overall, we consider that introducing a new licence condition is a proportionate

response to the problems we identified in the Report. The introduction of a new

licence condition is of particular importance in view of the fact that, as shown in our

Report, many customers on relatively low incomes use direct debit and find it difficult

to cope with unexpected increases in their bills. With the credit crunch continuing we

are committed to addressing issues which lead to an increased risk of debt and with

price volatility likely to be a feature of energy markets going forwards this is not a

problem that can be expected to go away. We think that the introduction of a new

licence condition on direct debits is necessary to protect the interests of existing and

future consumers.

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Direct Debit Arrangements October 2009

4. Views on the nature and scope of any new licence

obligations

In our consultation we sought views on different options for licence drafting. We

have decided to pursue a high level obligation which specifies the outcomes we

would wish to see but leaves flexibility for suppliers on how to achieve those

outcomes.

Question 1 – What form should the new licence condition take?

4.1. In chapter 4 of the Report we suggested three possible types of licence condition

that we had considered adopting -

 Option A : a targeted condition

 Option B : a broader condition setting out a high level expectation

 Option C : a requirement for a code of practice.

4.2. The three options are set out in full in Appendix 2.

4.3. We asked stakeholders which of Options A, B or C they thought would be the

better approach and asked if there were any other models that we should consider.

Respondents’ Views

4.4. Four respondents (including two consumer groups, one supplier and one small

supplier) said that they favoured option B. Two respondents (one supplier and one

consumer group) said that Option A would be the better approach. One consumer

group said that they thought Option C should be adopted. Two suppliers said that a

licence condition somewhere between Option A and Option B would be best.

4.5. Nine respondents said that they were not able to recommend any of the options

or did not comment on the matter at all. However of these respondents two small

suppliers said they most strongly objected to Option C and one supplier and one

small supplier objected more strongly to Options A and C than Option B.

4.6. Two consumer groups and one supplier suggested amendments to the proposed

wording or recommended the introduction of new or additional licence conditions.

4.7. One supplier stated that Option B, by applying to payment methods other than

direct debits, went beyond what was required by the Report as it did not include a

comment on whether there were systematic problems or errors in suppliers‟

calculation of payment amounts generally.

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Direct Debit Arrangements October 2009

4.8. A large proportion of the respondents saw Option C as too bureaucratic and it

was the most strongly opposed option. Small suppliers were concerned that if the

required industry code of practice was developed by the ERA they would not be

involved.

Ofgem’s View

4.9. We consider that a licence condition based on Option B would be the most

appropriate as it is more broadly worded. In line with our better regulation duty we

think it is important to avoid an overly prescriptive licence condition. We believe that

a licence condition which incorporates a higher level obligation will enable suppliers

to use innovative methods to meet the standards specified and allow suppliers to

differentiate their products in the market. Equally it would avoid the danger of the

licence condition being too narrow to cover unanticipated problems or being rendered

obsolete by changing circumstances. We therefore think that there are real benefits

to having a more broadly drafted licence condition which focuses on securing

outcomes for consumers rather than specifying how these should be achieved.

4.10. Furthermore we believe this approach is supported by the majority of

respondents. Most of the respondents who specifically stated which option they

preferred chose Option B and other respondents, who declined to choose an option,

displayed the least discontent with Option B.

4.11. At the beginning of August we wrote to suppliers and consumer groups seeking

comments on detailed drafting of a condition based on Option B. The first element of

the proposed condition would be to require suppliers to take all reasonable steps to

ensure that a customer‟s direct debit payment levels are based on the best available

information. This will help to address a number of the problems we identified in our

Report, including our concerns that direct debit payment levels were not being

reassessed quickly enough after retail price changes and the fact that some suppliers

were not doing enough to encourage customers to provide meter readings.

4.12. We also think that requiring suppliers to explain the basis of direct debit

payment levels to customers in a clear and intelligible manner is necessary to enable

them to understand and check the accuracy of their bills in a meaningful way.

4.13. We have considered the point made by some respondents that Option B did not

make it explicit that suppliers should not unnecessarily build up credit in a

customer‟s account. This issue was one of the particular problems identified in the

Report. We are satisfied that the proposed condition will address it. If, in accordance

with the proposed licence condition, suppliers are using the best available

information to calculate direct debit payment levels, a customer should not be

unnecessarily building up credit or debit. We expect suppliers to be proactive in the

steps they take to ensure this is the case.

4.14. While some consumer groups wanted us to specify a level at which automatic

refunds would be provided we believe this would be too prescriptive. The appropriate

level of credit will vary depending on the time of year when the account is reviewed

and on past consumption, for example.

Office of Gas and Electricity Markets 15

Direct Debit Arrangements October 2009

4.15. In addition, we believe that suppliers should be required to give reasons for

refusing to refund credit to a customer to help the customer understand this and, if

appropriate, to help them challenge the supplier if they wish to do so.

4.16. We note the concern expressed that the original language of Option B was too

widely drafted to the extent that it covered all types of payments not just direct debit

payments. As our investigation and subsequent Report specifically focused on the

problems with suppliers‟ direct debit arrangements we think that the new licence

conditions should seek to address the issues surrounding regular direct debit

payments of fixed amounts rather than payments generally. This is reflected in the

revised drafting.

4.17. In addition, we recognise that suppliers may in future wish to develop

innovative offerings such as Scottish Power's tariff where interest is paid on higher

credit levels. We would not wish to discourage such innovation and hence have

allowed an exception to be made to the condition where there are explicit contractual

terms covering the issue. The principle behind this is that the supplier will have

explained the terms clearly to the customer and that the customer will have

consciously signed up to them.

4.18. In some cases suppliers sought clarification of what we would consider

"reasonable" in the context of the licence drafting. We do not wish to prescribe what

suppliers should be doing but are sensitive to concerns about regulatory certainty.

We would therefore stress that we would generally expect to take action under this

condition where there is evidence of consumer detriment and would then judge

whether a supplier's actions were reasonable in the context of the relevant elements

of the best practice guidance we have published.

4.19. Consumer Focus raised a further concern about the need for suppliers to take

account of ability to pay in setting repayment levels where a debit has built up. In

our view this is already covered by SLC 27.

4.20. The licence drafting that we are proposing and on which we are now formally

consulting is set out at Appendix 4 (electricity) and Appendix 5 (gas). The two

conditions are the same.

Links with the Probe

4.21. As noted in Chapter 2, we have considered the interactions of these proposals

with our work on the Energy Supply Probe. This has resulted, in particular, in the

publication for consultation on 7 August 2009 of licence condition 25.7(c) entitled

“Marketing Electricity/Gas to Domestic Customers” which requires suppliers to

explain how any direct debit payment level proposed as part of a face-to-face sale

relates to the annual estimate of charges that the sales agent has to provide. The

purpose of this is to avoid situations where customers are persuaded to switch

supplier based on the promise of reduced direct debit payments, where the actual

price may not be any lower. Suppliers can rely on the same documentation to meet

their obligations under the proposed condition 25.7(c) and the condition proposed

Office of Gas and Electricity Markets 16

Direct Debit Arrangements October 2009

here. However, where direct debit levels are not covered as part of a face-to-face

sale, then suppliers would need to provide an explanation of the proposed level

under the condition proposed here. Given that many of the cases we looked at were

the result of the initial direct debit having been set at an inappropriate level, we

consider it important that all customers receive an explanation when the direct debit

is first set up as well as when it is changed.

4.22. The other concern that has been raised is that under these proposals direct

debit levels should be based on the best estimate of future consumption whereas

some of the information provision requirements in the Probe focus on historic

consumption. We see both historic consumption and estimated future consumption to

be relevant information for consumers to have, for different purposes, and that there

is no inconsistency in our approach.

Question 2 – What should be the scope of application of the licence

conditions?

4.23. In addition we wanted stakeholder input on what would be the appropriate

coverage of any licence condition that we might introduce. We asked stakeholders if

any new licence condition we introduced should apply to small business customers as

well as domestic customers. We also asked for views on whether any new licence

condition should apply to all suppliers irrespective of size or market share.

Respondents’ Views

4.24. Should any new licence condition which is adopted apply to small business

customers?

4.25. Eight industry respondents said that small business customers should not be

covered by any new licence condition that we might introduce. Six respondents

(three consumer groups, two small suppliers and one supplier) said that if a licence

condition was imposed it should be applied to small business customers. One

consumer group said that any obligation adopted should also cover small business

customers but that an impact assessment would need to be carried out first.

4.26. The main reasons given by the industry respondents as to why any new licence

condition should not apply to small business customers were that -

 The Report was specific to the domestic market and so the issues relating to

small business customers have not been reviewed.

 Different issues exist in relation to small business customers as compared with

domestic customers.

Office of Gas and Electricity Markets 17

Direct Debit Arrangements October 2009

4.27. Should any new licence condition which is adopted be imposed on all suppliers

irrespective of their size or market share?

4.28. Four respondents (two suppliers, one small supplier and one consumer body)

said if an obligation was adopted it should be imposed on all suppliers irrespective of

their size or market share.

4.29. Amongst the reasons given for arguing that any new licence condition should

be applied to all suppliers were the following comments -

 It was necessary to prevent the distortion of the competitive market.

 Many smaller suppliers are likely to already be providing their customers with

transparent communications and so the licence condition should not add unduly

to their regulatory burden.

 Customers of smaller suppliers should not receive lower levels of protection or be

subject to poorer standards of communications.

Ofgem’s View

4.30. Should any new licence condition which is adopted apply to small business

customers?

4.31. As we did not analyse direct debit arrangements in relation to small business

customers in our Report we do not think they should be covered by the new licence

conditions at this stage. However we expect that suppliers as they develop their

policies and procedures will apply them to small business customers as well in the

interest of good customer service.

4.32. Should any new licence condition which is adopted be imposed on all suppliers

irrespective of their size or market share?

4.33. We have concluded that the licence condition should apply to all suppliers

regardless of their size or market share. The licence condition is designed to provide

important consumer protection and we do not think that customers of small suppliers

should experience lower levels of protection than other customers. Furthermore no

small suppliers indicated in their responses that the proposed licence approach which

focuses on securing outcomes rather than specifying specific methods of achieving

them, would be an undue burden.

Question 3 – When should any licence condition which is introduced be

implemented?

4.34. We asked stakeholders, if we ultimately decided to introduce a licence

condition, what would be a realistic timetable for the implementation of that licence

condition.

Office of Gas and Electricity Markets 18

Direct Debit Arrangements October 2009

Respondents’ Views

4.35. Six respondents (three consumer bodies, two small suppliers and one supplier)

answered this question. Consumer groups were keen to see an early implementation

while suppliers highlighted the need for time for implementation. The time suppliers

considered they would require ranged from the end of the year to late 2011.

Ofgem’s View

4.36. We intend the new licence conditions to be introduced and come into effect by

18 January 2010 in order to align the changes with a number of the changes being

progressed by the Energy Supply Probe. This allows a period for suppliers to satisfy

themselves that they are compliant. Our view is that this timescale is reasonable,

given that our original recommendations were published in March and that we are

not being prescriptive about the approach that suppliers should adopt.

4.37. In many cases suppliers have already taken steps to implement our

recommendations, and we look to suppliers to put any new arrangements in place as

soon as possible ahead of the licence condition coming into force.

Office of Gas and Electricity Markets 19

Direct Debit Arrangements October 2009

5. Next Steps

This chapter discusses the next steps we are taking in proposing modifications to the

existing licences.

Legal framework for making the modifications

5.1. We propose to introduce the licence modifications outlined earlier in this

document using the collective licence modification process. The Statutory Notices

contained in Appendices 4 and 5 propose licence modifications to the standard

conditions of the gas and electricity supply licences. These licence modifications are

set out in the Schedules to each Notice.

5.2. It is open to any interested party to make representations. In addition, relevant

licence holders under section 23(12) of the Gas Act 1986 and section 11A(10) of the

Electricity Act 1989 may give notice to the Authority if they object to the proposed

modifications.

5.3. Any of the proposed modifications may be blocked by the objections of relevant

licence holders

or by the Secretary of State directing the Authority not to make a

modification.

5.4. In the event that the proposed licence modifications are blocked by way of

objection, the Authority may consider alternative approaches. These include making

a reference to the Competition Commission if we still want to proceed with a

particular licence modification. If the Competition Commission subsequently decides

that it is in the public interest for the modification to be made, then the Authority

may implement the modification.

5.5. We would encourage relevant licence holders to let us know as soon as possible

if they propose to object to the proposed modifications. This way, we will be able to

understand properly the nature of any objection and to discuss possible ways

forward. It should be noted that objections cannot be withdrawn after the final date

set out in the Statutory Notices for objections to be submitted by 30 October 2009.

1 The Authority will not be able to make the modification that is subject to the objection

where: 20 per cent or more of the relevant licence holders; or 20 per cent or more of the

relevant licence holders weighted according to their market share, have given notice of

objection to the Authority (and not withdrawn it) by the relevant date (which in this case is 30

October 2009).

Office of Gas and Electricity Markets 20

Direct Debit Arrangements October 2009

Appendices

Index

Appendix

Name of Appendix

Page Number

Consultation Questions

The Licence Condition Options

Additional Elements of Best Practice Suggested

by the Respondents

Notice of Proposed Modification to Electricity

Supply Licence Standard Conditions

Notice of Proposed Modification to Gas Supply

Licence Standard Conditions

The Authority‟s Powers and Duties

Glossary

Feedback Questionnaire

Office of Gas and Electricity Markets 21

Direct Debit Arrangements October 2009

Appendices

Appendix 1 - Consultation Questions

1.1. In its consultation document, Ofgem sought the views of respondents about a

number of questions as set out below:

CHAPTER: One

Question 1: Do you agree with our analysis of the issues?

Question 2: Do you agree with the elements of best practice we have identified

(described here and summarised in chapter 3)?

Question 3: Are there any other elements of best practice you think we should

consider?

CHAPTER: Two

Question1: Is a licence condition needed in this area? Please give reasons.

Question2: Do you consider that suppliers could deliver the improvements we have

identified through self-regulation? Please give reasons.

CHAPTER: Three

Question1: Which of the options A, B or C do you consider would be the better

approach? Are there any other models we should consider?

Question2: Should any obligation apply to small business consumers as well as

domestic consumers?

Question3: What would be a realistic timescale for implementation?

Office of Gas and Electricity Markets 22

Direct Debit Arrangements October 2009

Appendices

List of Respondees

List

Name

Age Concern / Help the Aged

British Gas

Citizens Advice Bureau

Civil Service Pensioners' Alliance

Consumer Focus

Dave Vass - Consumer

EDF Energy

E.ON

Energy Retail Association

First Utility

Good Energy

Haven Power

James Insell - Consumer

Opus Energy

Robin Beasely - Consumer

RWE npower

Scottish Power

Scottish and Southern Energy

Steve Worral - Consumer

Trading Standards Institute

Summary of Responses

Responses received by Ofgem which were not marked as being confidential have

been published on Ofgem‟s website

http://www.ofgem.gov.uk/Consumers/CCI/Pages/DirectDebits.aspx .

Copies of non-confidential responses are also available from Ofgem‟s library.

Office of Gas and Electricity Markets 23

Direct Debit Arrangements October 2009

Appendices

Appendix 2 – The Licence Condition Options

Option A

A targeted licence condition which addressed how suppliers communicate changes to

direct debit payments. It was proposed that it might say:

“When setting and amending direct debit payments suppliers must provide

customers with a clear statement of the basis for these payments (including

assumed usage)”.

Option B

A broader licence condition which would go beyond communication and which would

set out high level expectations but leave details of how to achieve this to suppliers,

allowing scope for innovation. It was proposed that the licence condition might read:

“Suppliers must take all reasonable steps to ensure that customer payment levels

are based on the best available information and are explained clearly and accurately.

Any credit built up by a customer should not be unreasonably withheld”.

Option C

An obligation to comply with a code of practice, with detailed requirements described

outside the licence. The code of practice could be written by Ofgem, or by the

industry. It was proposed that the licence condition might read:

“Suppliers must ensure that any arrangements involving direct debit payments

comply with the direct debit code of practice, as modified from time to time by

Ofgem. “

The options suggested for how the "direct debit code of practice" might be defined

were:

a. "put in place by Ofgem pursuant to this condition and following consultation with

suppliers, Consumer Direct, Consumer Focus, and the Energy Ombudsman"; or

b. "agreed between energy suppliers and published on their websites"; or

c. "submitted to Ofgem by suppliers within x days of the introduction of this

condition and approved by Ofgem, following consultation with Consumer Direct,

Consumer Focus, and the Energy Ombudsman".

Office of Gas and Electricity Markets 24

Direct Debit Arrangements October 2009

Appendices

Appendix 3 – Additional Elements of Best Practice

Suggested by the Respondents

Number of

Respondents

Supporting the

Best Practice

Recommendation

Suggested Best Practice

Consumer

When a credit balance exceeds twice the monthly direct debit payment

an automatic reassessment of the customer‟s consumption levels and

monthly direct debit payment should be triggered.

Consumer

Suppliers should be required to provide customers with the calculation

that underpins any revised direct debit payment.

Consumer

Suppliers should be required to operate their direct debits on a normal

12 month cycle for payments based commencing on the anniversary of

joining.

Age Concern – Help

the Aged

The “payment year” should be set out clearly on customers‟ bill as well

as being explained to them when they set up their direct debit.

Consumer and Civil

Service Pensioners‟

Alliance

At the end of the 12 month period any amount of credit should

automatically be refunded to the customer unless the customer asks for

the credit to be carried forwards.

Civil Service

Pensioners‟ Alliance

There should be a set level of credit that a supplier can hold before the

supplier is required to refund the money to the customer. If a supplier

provides gas and electricity the level of credit should be based on the

level of credit on both fuel accounts even where the supplies are billed

separately.

Consumer Focus

Suppliers should be obliged to review customers‟ direct debit payments

within 90 calendar days of a price change and if necessary amend its

customers‟ direct debit payments.

Consumer Focus

An obligation should be imposed on suppliers requiring them to send out

letters to customers at the end of their annual review offering customers

the option of having their credits refunded.

Consumer Focus

An industry wide standard for large credit balances to be automatically

refunded at the annual review.

Consumer Focus

Supplier should have to take into account a customer‟s ability to pay

when requiring the repayment of debts. A customer should not have to

repay debts within a 12 month period if it not appropriate to his

circumstances.

Consumer Focus

Where a pre-payment meter customer moves to a direct debit payment

method there should be a review of that customer‟s consumption levels

after three months of the change in payment method to make the direct

debit payment levels more accurate.

Scottish Power

An existing Ofgem proposal should be modified so that it reads:

“Suppliers should ensure that reassessments are carried out on a timely

basis, taking account of the need to manage customer contact levels.”

Office of Gas and Electricity Markets 25

Direct Debit Arrangements October 2009

Appendices

Appendix 4 - Notice of Proposed Modification to Electricity

Supply Licence Standard Conditions

To: All holders of an electricity supply licence

NOTICE OF MODIFICATION OF THE STANDARD CONDITIONS OF

ELECTRICITY SUPPLY LICENCES UNDER SECTION 11A OF THE ELECTRICITY

ACT 1989

Whereas:

1. Each of the companies to whom this notice is addressed holds an electricity

supply licence granted, or treated as granted, pursuant to section 6(1)(d) of the

Electricity Act 1989 (the “Act”).

2. In accordance with section 11A(3) and (4) of the Act, the Gas and Electricity

Markets Authority (the “Authority”) gives notice (“Notice”) that it proposes to modify

the standard conditions of the electricity supply licence.

3. The proposed licence modification is set out in Schedule 1 to this Notice.

4. The reasons why the Authority proposes to make this modification have been

published by the Authority in the following document:

- Direct Debit Arrangements – Decision Document, 2 October 2009.

5. This document is available free of charge from the Ofgem library, 9 Milbank,

London SW1P 3GE (0207 901 7003) or from the Ofgem website www.ofgem.gov.uk.

6. Subject to responses, it is intended that the date on which the modification takes

effect will be 18 January 2010.

7. In summary, the proposed licence conditions aim to ensure that the interests of

consumers are protected by requiring that:

i) the licensee takes all reasonable steps to ensure that domestic customers‟ direct

debit payment levels are based on the best available information, including the

quantity of electricity supplied or to be supplied to the domestic customer;

ii) the licensee takes all reasonable steps to ensure that the basis for a domestic

customer‟s direct debit payment levels is clearly explained to the domestic customer;

and

iii) the licensee refunds credit which has accumulated in a domestic customer‟s

account at the request of the domestic customer unless there are fair and reasonable

grounds for withholding that credit. The reasons for withholding that credit are

conveyed to the domestic customer.

Office of Gas and Electricity Markets 26

Direct Debit Arrangements October 2009

Appendices

8. Any representations or objections to the proposed modification may be made

before 30 October 2009 and sent to:

Andy Burgess

Head of Enforcement & Competition Policy

Ofgem

9 Millbank

London SW1P 3GE

Or by e-mail to Andy.Burgess@ofgem.gov.uk.

9. Although any person may make representations, only those licensees who are

“relevant licence holders” under section 11A(10) of the Act may register a formal

objection to any proposed modification.

2 October 2009

Maxine Frerk

Partner, Governance, Consumer and Social Affairs

Ofgem

Authorised on behalf of the Authority

Office of Gas and Electricity Markets 27

Direct Debit Arrangements October 2009

Appendices

SCHEDULE 1

MODIFICATION OF THE STANDARD LICENCE CONDITIONS OF ELECTRICITY

SUPPLY LICENCES UNDER SECTION 11A OF THE ELECTRICITY ACT 1989

The licence Condition

Add to existing Standard Licence Condition 27 ‘Payment methods under Domestic

Supply Contract’:

27.13 Paragraphs 14, 15 and 16 apply where a Domestic Customer pays the

Charges for the Supply of Electricity which are payable under its Domestic Supply

Contract by way of regular direct debit payments of a fixed amount (which amount

may be varied from time to time in accordance with the relevant Domestic Supply

Contract).

27.14 The licensee must provide to each such Domestic Customer an explanation in

clear, plain and intelligible language of the basis upon which a fixed amount (and any

variation of that fixed amount) has been determined.

27.15 Save where a clear and express Principal Term of the relevant Domestic

Supply Contract provides otherwise, the licensee must take all reasonable steps to

ensure that the fixed amount of the regular direct debit payment is based on the

best and most current information available (or which reasonably ought to be

available) to the licensee, including information as to the quantity of electricity which

the licensee reasonably estimates has been or will be supplied under the relevant

Domestic Supply Contract.

27.16 Where any Credit has accumulated under a Domestic Supply Contract and the

relevant Domestic Customer requests that the licensee do so, the licensee must,

save where it is fair and reasonable in all the circumstances for the licensee not to do

so, refund, in a timely manner, any Credit which has accumulated under that

Domestic Supply Contract to the relevant Domestic Customer. Where the licensee

considers that it is fair and reasonable in all the circumstances for it not to refund

any Credit which has accumulated under a Domestic Supply Contract in accordance

with this provision, it must inform the relevant Domestic Customer of its view and of

the reasons for holding that view.

In this condition, “Credit” means the amount by which the payments made by a

Domestic Customer to the licensee under or in accordance with the relevant

Domestic Supply Contract exceeds the total amount of Charges for the Supply of

Electricity which is due and payable by that Domestic Customer to the licensee under

that Domestic Supply Contract.

Office of Gas and Electricity Markets 28

Direct Debit Arrangements October 2009

Appendices

Appendix 5 - Notice of Proposed Modification to Gas Supply

Licence Standard Conditions

To: All holders of a gas supply licence

NOTICE OF MODIFICATION OF THE STANDARD CONDITIONS OF GAS

SUPPLY LICENCES UNDER SECTION 23(1)(b) OF THE GAS ACT 1986

Whereas:

1. Each of the companies to whom this notice is addressed holds a gas supply

licence granted, or treated as granted pursuant to section 7A(1) of the Gas Act 1986

(the “Act”).

2. In accordance with section 23(3) and (4) of the Act, the Gas and Electricity

Markets Authority (the “Authority”) gives notice (“Notice”) that it proposes to modify

the standard conditions of the gas supply licence.

3. The proposed licence modification is set out in Schedule 1 to this Notice.

4. The reasons why the Authority proposes to make this modification have been

published by the Authority in the following document:

- Direct Debit Arrangements – Decision Document, 2 October 2009.

5. This document is available free of charge from the Ofgem library, 9 Milbank,

London SW1P 3GE (0207 901 7003) or from the Ofgem website www.ofgem.gov.uk.

6. Subject to responses, it is intended that the date on which the modification takes

effect will be 18 January 2010.

7. In summary, the proposed licence conditions aim to ensure that the interests of

consumers are protected by requiring that:

i) the licensee takes all reasonable steps to ensure that domestic customers‟ direct

debit payment levels are based on the best available information, including the

quantity of electricity supplied or to be supplied to the domestic customer;

ii) the licensee takes all reasonable steps to ensure that the basis for a domestic

customer‟s direct debit payment levels are clearly explained to the domestic

customer; and

iii) the licensee refunds credit which has accumulated in a domestic customer‟s

account at the request of the domestic customer unless there are fair and reasonable

grounds for withholding that credit. The reasons for withholding that credit are

conveyed to the domestic customer.

Office of Gas and Electricity Markets 29

Direct Debit Arrangements October 2009

Appendices

8. Any representations or objections to the proposed modification may be made

before 30 October 2009 and sent to:

Andy Burgess

Head of Enforcement & Competition Policy

Ofgem

9 Millbank

London SW1P 3GE

Or by e-mail to Andy.Burgess@ofgem.gov.uk.

9. Although any person may make representations, only those licensees who are

“relevant licence holders” under section 23(12) of the Act may register a formal

objection to any proposed modification.

2 October 2009

Maxine Frerk

Partner, Governance, Consumer and Social Affairs

Ofgem

Authorised on behalf of the Authority

Office of Gas and Electricity Markets 30

Direct Debit Arrangements October 2009

Appendices

SCHEDULE 1

MODIFICATION OF THE STANDARD LICENCE CONDITIONS OF GAS SUPPLY

LICENCES UNDER SECTION 23(1(B) OF THE GAS ACT 1986

The licence Condition

Add to existing Standard Licence Condition 27 ‘Payment methods under Domestic

Supply Contract’:

27.13 Paragraphs 14, 15 and 16 apply where a Domestic Customer pays the

Charges for the Supply of Gas which are payable under its Domestic Supply Contract

by way of regular direct debit payments of a fixed amount (which amount may be

varied from time to time in accordance with the relevant Domestic Supply Contract).