THE energy regulator has accused suppliers of using customers’ credit like an “interest-free company credit card”, in a major crackdown on providers.
Ofgem has announced new plans to make sure consumers don’t end up footing the bill over collapsed energy firms.
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It has set out new measures that it hopes will stop energy suppliers going bust and protect customers.
The changes include:
- Suppliers to have greater financial health so they are less likely to collapse in market shocks
- Consumer credit balances to be protected
- Green levies to be protected
- Costs of failed firms NOT to be picked up by consumers
- Suppliers to have better control over “the key assets they need to run their business”
- Tighter rules on the level of direct debits that suppliers can charge customer
Ofgem said it hoped the measures would reduce the risk of suppliers going bust, and provide more protection for consumers.
Jonathan Brearley, chief executive at Ofgem, said: “Today’s proposals will make sure that customers’ hard-earned money is properly protected so that a company must foot the bill if it fails, rather than consumers picking up the tab.”
It said the measures should protect consumers’ credit balances if firms do collapse, so they are not left footing the bill for failed businesses.
As energy prices started to rocket last year, almost 30 firms collapsed, including Bulb, which had 1.7million customers.
It is estimated that the failures have cost every UK household around £94 each.
Ofgem said the cost of moving customers to new suppliers, providers having to buy extra gas at short notice while prices were at record highs, and replacing lost customer credit balances and green levy payments had all cost UK households money.
Gillian Cooper, of Citizens Advice, said: “Ofgem has previously allowed energy suppliers to run risky business models. As a result, it’s customers who’ve been left to foot the bill when companies collapse.”
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A safety net ensures customers are quickly moved to a new supplier with their credit balances intact if a supplier fails.
But under current rules, when an energy provider takes on the customers of a failed firm, it does not get customers’ credit balances from the collapsed supplier.
That means the cost reinstating these balances has to be borne by the new supplier – and it is invariably passed on to customers.
But under the new rules – which still need to go through a final consultation – customers’ money would be moved across to the new firm if a supplier goes bust.
Brearley said: “By ensuring that suppliers are operating well-financed sustainable and have more resilient business models, we can avoid the supplier failures we saw last year, which caused huge stress and worry, and added costs to everyone’s bills.”
“But if some do still fail, consumer credit balances and green levy payments will be protected.
“Currently they are used by some suppliers like an interest-free company credit card.
“Moving forward, all suppliers will have to have enough working capital to run, without putting their customers’ credit balances at risks.”
What is happening with energy prices?
Households have seen their energy bills rocket over the past year. In April, the price cap increased and sent the average household bill to £1,971 a year.
It is expected to rise again to an average of £2,800 in October.
Soaring wholesale prices are largely behind the price hikes, with higher-than-expected demand after the Covid lockdowns and the ongoing Russia/Ukraine crisis.
The soaring prices have left many households’ finances on the brink, and some people facing the devastating choice between heating and eating.
The government has been forced to step in to try and help struggling households.
In May, Chancellor Rishi Sunak announced a package of measures including:
If you are struggling with your bills there many be extra help you can get.
Your first step, if you’re struggling, should be to contact your energy supplier.
If you’re on a prepayment meter you might be able to get a one-off voucher to top up.
Some providers have hardship funds offering grants of up to £750 to those in energy debt.
British Gas and Octopus both have funds to help households who are struggling to pay.
A £1.5billion household support fund means local councils are dishing out help to eligible residents in their area.
Turn2Us has a free grants search tool so you can find out what help is available to you.
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