Ofgem has announced that energy customers’ money is to be protected under new financial measures to ensure suppliers can withstand future shocks to the market.
The energy regulator has said suppliers will be able to “weather the ongoing storm” of challenges facing the industry, especially over autumn and winter. Proposals include better protecting consumer credit balances if a company goes into administration, ensuring suppliers have enough money during trying circumstances and allowing firms to have sufficient control over key assets.
Ofgem also announced on June 20 that there will be a tightening on the level of direct debits suppliers can charge customers.
The energy regulator has said the changes will reduce the risk of suppliers going bust and protect the credit balances of energy customers if they do.
A safety net ensures customers are quickly moved to a new supplier with their credit balances intact if a supplier does collapse.
The measures were announced on the same day new data from energy analysts, Cornwall Insight, predicted a £1,000 increase to the price cap from October, taking typical usage bills for those on a standard tariff to £2,980 - some 51% higher than the current cap.
Jonathan Brearley, CEO of Ofgem, said: “These plans are another step in making sure the complex energy market is fair, resilient and works for everyone.
“The energy market remains incredibly volatile and there are a number of huge geopolitical issues continuing to apply massive pressure. Ofgem is working hard to ensure energy suppliers shore up their positions so they can weather the ongoing storm.
“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.”
However, he added: : “But if some do still fail, consumer credit balances and green levy/renewables payments will be protected. Currently they are used by some suppliers like an interest free company credit card.”
He also said that moving forward, all suppliers will need to have enough working capital to run, without putting their customers’ credit balances at risk.
“These 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,” he concluded.
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.
“We’re glad that Ofgem has listened to our warnings and is taking necessary steps to tackle some of the root causes of these issues.
“It must now ensure suppliers stick to these tougher standards so that people are better protected in the future.”
You can read the full list of measures on the Ofgem website, here.
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