Re: Proposed debt assignment protocol for prepayment customers
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Dave Barnes Head of Social Issues Ofgem
9 Millbank LONDON
SW1P 3GE. 11 December 2001 Dear Dave Re: Proposed debt assignment protocol for prepayment customers.As a relatively new entrant into the gas and electricity supply markets and one of the few suppliers still actively seeking to compete for new customers, Atlantic is clearly very supportive of any initiative by Ofgem to increase customers’ choice of (and ability to switch) supplier. I hope, therefore, that you will consider the following comments in that context. Atlantic’s primary concern about the Protocol is that the factoring rate has been set at 90%. Atlantic has stated at Working Group meetings that it would only be able to accept a factoring rate of 70%. A factor rate of 90% favours companies that are net losers of ppm customers in debt, i.e. most of the big incumbent suppliers, as opposed to net gainers. 90% is inadequate to cover the costs and bad debt risks that taking on such customers would bring. In many cases, the debt has been allowed to build up as a result of many years of mis-management by the previous supplier. And yet, the gaining supplier is expected to take on this debt up front, without being adequately compensated for the significant costs and risk in doing so. As a new entrant, cash-flow and bad debt are especially critical to Atlantic. If the volumes of customers switching under the Protocol turned out to be large, we simply could not afford the cash to “pay” for customers’ debts. The Protocol, therefore, is a subsidy for mismanagement by incumbents and penalises new entrants such as Atlantic who will have to borrow the money at terms which will make these customers unprofitable. This will act as a perverse incentive and discourage us from investing in the systems and processes to enable us to offer much more advantageous prices to pre-payment customers Not having been able to participate in the trial, we are still unsure what the costs/systems implications of the Protocol will be for Atlantic. At present, obviously, nobody can be certain what the take-up will be and it is assumed that, initially at least, volumes will be low. This may well be the case and, if it is, we would be able to administer the Protocol manually. If, however, Atlantic began to receive large numbers of contracts from ppm customers with debts, we would have to make the necessary system changes to cope with the increased volume. This would have significant cost implications for the company. As you are no doubt aware, Atlantic is, in most parts of the country, the cheapest electricity and gas supplier. This can only be achieved by continuing to keep our costs down. Significant IT changes to deal with the demands of the Protocol would increase our costs. We would, however, be more than happy to make this investment if the basic economics of the debt transfer arrangement made sense. As I have explained above, they do not at a 90% factoring rate. We are also concerned that the Protocol may, inadvertently, lead to an increase in complaints to energywatch. The transfer process is complex enough as it is and it could be that the Protocol will complicate the process still further. There is a possibility that customers could become frustrated by this and take their frustrations to energywatch in the form of complaints. Due to the way in which energywatch statistics are calculated, a small supplier like Atlantic will tend to find itself at the top of the complaint league tables. This would be very damaging to the company’s reputation and Atlantic is, therefore, very nervous of any new processes that could potentially increase the number of complaints going to energywatch. As discussed at the outset of this letter, Atlantic is fully supportive of Ofgem’s efforts in this area and would, in most cases, support initiatives to allow customers increased mobility between suppliers. However, the current proposal is strongly biased in favour of the incumbent suppliers and, as such, is potentially anti-competitive. Whilst, we will obviously abide by the standard licence modification if the amendment is accepted by the majority of suppliers, we would urge Ofgem to review the working of the Protocol within, say, a year of its implementation. This will ensure that it does not disadvantage new entrants and actively competing suppliers such as Atlantic or the very customers that it is meant to help. Yours sincerely, Siobhan O’Loughlin Regulation Officer CC: Janet Marsh, Director Central Region, energywatch - - Directory: ofgem-publications ofgem-publications -> Annette Lovell Head of Customer Contact and Compliance ofgem-publications -> Objecting in the domestic market Download 11.89 Kb. Share with your friends:
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