Octopus Energy Defends Customer-First Approach After £1.5m Ofgem Fine

Energy giant argues its prepayment policies saved customers £7m despite regulatory breach

Table of Contents

• The Regulatory Challenge
• Alternative Approach Saves Millions
• Zero Customer Complaints
• Market Leader Position
• Regulatory Response
• Looking Forward

Octopus Energy has launched a fierce defence of its billing practices after being fined £1.5 million by energy regulator Ofgem, claiming its approach saved vulnerable customers nearly £7 million more than strict compliance with regulatory policies would have achieved.

The fine, announced Tuesday, relates to more than 34,000 prepayment meter accounts that failed to receive final bills within the required six-week period between 2016 and October 2023. However, Octopus has hit back at what it calls “impossible” rules and an “unrealistic final-bill mandate based on unreliable data.”

The Regulatory Challenge

The dispute centres on Ofgem’s requirement that energy suppliers must provide customers with final bills within six weeks when they move out of their homes. While sensible in principle, Octopus argues this policy is practically unworkable for prepayment customers due to systemic industry issues.

According to the company, 60% of prepayment customers don’t notify suppliers when they move, with most using up their remaining credit or leaving it for the next tenant. The energy supplier also highlighted that only 2% of prepay customers contact them about final bills, while 70% of refund cheques go uncashed due to lack of forwarding addresses.

“This means that under Ofgem’s rules, only about 16% of prepay customers would actually receive a final statement and any due credit refund,” the company stated.

Alternative Approach Saves Millions

Rather than following what it describes as an unworkable system, Octopus adopted a different strategy. The company charged prepay customers around £70 below the price cap – unlike other major suppliers – ensuring they were always better off regardless of their tenancy status.

Additionally, Octopus leaves any remaining credit on meters for incoming tenants to use and writes off debt when contacted by new tenants. These policies collectively saved customers over £7 million more than strict policy compliance would have achieved, the company claims.

Zero Customer Complaints

Octopus has particularly criticised Ofgem for spending two years investigating what it calls “an alleged issue with prepayment meter bills that had zero customer complaints.” The company argues this represents a misallocation of regulatory resources during a period of soaring energy costs.

Rachel Fletcher, Director of Economics and Regulation at Octopus Energy, said: “Octopus has always been focused on doing the right thing for customers and thinking outside the box to deliver good outcomes for customers despite imperfect industry systems and data.”

“With energy costs soaring, we’d like to see Ofgem put people over policies. People want lower bills. We’d like to see Ofgem focusing its efforts on delivering that.”

Market Leader Position

The controversy comes as Octopus has cemented its position as Britain’s largest household energy supplier, having overtaken British Gas earlier this year. The company gained significant market share following the energy crisis triggered by Russia’s invasion of Ukraine in 2022, when more than half of suppliers left the market or collapsed.

Currently, six energy companies hold more than 90% of the household energy market, with small and medium suppliers accounting for just 8.9% of the remaining market share.

Regulatory Response

Ofgem has defended its position, with director Beth Martin stating: “It’s important that customers receive final bills in accordance with our rules, so they are aware of any credit remaining on their accounts and can reclaim it. This is particularly important for prepayment meter customers who are more likely to be in financial difficulty.”

The regulator confirmed that affected customers received an average of £43 each, with Octopus paying £231,000 in refunds of remaining credit and a further £1.25 million in compensation.

Looking Forward

The £1.5 million fine will be used to repay customers, and Octopus has complied with Ofgem’s demands to change its billing policy. However, the company has called on the regulator to return to principles-based regulations and prioritise bringing bills down for all customers by fixing what it describes as the “broken energy system.”

The dispute highlights ongoing tensions between regulatory compliance and customer-focused innovation in the energy sector, particularly regarding vulnerable prepayment customers who often face different challenges than standard billing customers.

For more energy industry news and analysis, visit otatso.uk