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10 | 16TH - 22ND OCTOBER 2015 | UTILITY WEEK Policy & Regulation Analysis E nergy secretary Amber Rudd is deter- mined to appear tough on energy sup- pliers. She told the Conservative Party conference last week she would keep way- ward energy suppliers in line. "Where companies have developed a pat- tern of bad behaviour, they will have no hid- ing place," she said. The energy ombudsman has been singled out to be the bloodhound of bad behaviour, and will be given powers to act on its findings in a "strengthened role". However, instructing the ombudsman to identify wider issues is nothing new. Rudd's announcement does not address how this might be done – and paid for. Rudd appears to be acting upon the find- ings of a review published in early October, undertaken by Lucerna partners on behalf of Ofgem, which outlines a wider future role for the Energy Services Ombudsman (OSE). It said the OSE's future work should build on its handling of individual complaints and use that data to identify the root causes of repeat issues. It also said it should move to dealing with fewer, harder individual cases. Currently, OSE is funded through an annual membership fee paid by all licensed energy suppliers, topped up by a case fee for each complaint. This leaves the burden of maintaining the service with those compa- nies whose customers benefit most from it. The Department of Energy and Climate Change (Decc) said expanding the ombuds- man's role would not necessarily increase its costs. A spokesperson for Decc said: "There will only be an additional cost if the ombuds- man receives more complaint referrals." However this is not what the review found. It said that the OSE could be less likely to tackle the industry on difficult issues because such cases were "unfunded". Furthermore, the report identified "lit- tle overlap" between the skills needed to handle individual complaints and the skills needed to identify wider systemic issues. The ombudsman's new data system "may not currently capture the complaint data in a way that is useful for interrogation to iden- tify wider systemic issues". And just as costs are set to rise, its reve- nue may be about to fall. Lucerna found that the OSE's current high volume of complaints cases – more than 15,000 in 2013/14 – was unlikely to last and a move to fewer, more difficult cases would impact "OSE's resource levels, skills and capabilities" and financing. As both the review and Decc point out, the OSE and Ofgem have the power to amend the OSE's business plan and case fees, so energy suppliers should not be surprised if Rudd's announcement results in a hit to all their pockets, whether they top the customer service leagues or languish at the bottom. At least what has been addressed is how clarity will be achieved. OSE said it planned to have an "early meeting with Energy UK, Ofgem, Citizens Advice and the energy com- panies to discuss how we can increase the effectiveness of the work we do in preventing problems and improving customer service". As well as clarity, this should also address concerns held by OSE on how to maintain impartiality while taking on a role more akin to a regulator. Power to the ombudsman? The government wants to beef up the powers and responsibility of the energy ombudsman, but how exactly will this be done, and how will it be funded? Lucinda Dann reports. Review's main findings: Funding The fee structure of the OSE, which collects funds from individual cases, does not provide sustainable revenue from identifying wider issues. According to Lucerna "[senior manage- ment] have concerns as to how it should be funded if the OSE were to expand its role", because the "activities that might be needed to underpin these functions do not appear to have been planned into the business plan". Clarification of role and alignment of goals Lucerna found that Ofgem and OSE may have different expectations of how much identifica- tion and reporting should be undertaken for systemic issues. While senior management at OSE agree that OSE should undertake this kind of work, Lucerna found "uncer- tainty about how it should do so and what is involved". The lack of key performance indica- tors (KPIs) attached to this role was also given as a reason why OSE had instead focused on resolving individual complaints, where KPIs are in place. OSE believes its core function of resolving individual complaints requires it to remain impartial and independent. Lucerna said it "heard some caution about how challenge to the firms would be received", with senior management believing that performing a role more akin to a regulator might compromise its impartiality. Dedicated referral system Identifying systemic trends currently relies on "the initiative of a small number of key individuals, particularly the energy relation- ship manager, to actively investigate and question enquiry and investigation teams to identify trends and issues". There is also no dedicated recording or referral system in place for informing Ofgem. Lucerna particularly noted the inability of OSE's data collection systems to "capture the complaint data in a way that is useful for interrogation to identify wider systemic issues". Ombudsman's current role in identifying systemic issues • OSE to have procedures to identify systemic problems and refer to appropriate organisation. • OSE must have processes for identifying and reviewing cases with wider implications. • Annually report on any systematic or significant problems that occur frequently and recommend how to avoid or resolve such problems. • A duty to recommend systemic changes in policy or procedure relating to dispute handling in a service sector (and discretion to publish such recommendations). • OSE to bring to Ofgem's attention any trends or issues of concern across the industry that it considers are arising. • OSE (and Ofgem) to share information on emerging generic issues.