The changes also aim to reduce the risk of suppliers going bust while protecting the credit balances of energy customers if their suppliers do.
The plans would mean energy retailers are required to protect their customers’ money so that it isn’t lost if they go out of business adding costs to already high bills and causing a huge amount of stress and worry for customers.
The proposed changes include:
• Improvements to the financial health of suppliers, to ensure they can weather the current challenges and reduce the risk of failures;
• Protecting consumer credit balances and green levies when suppliers fail, to prevent the costs being picked up by consumers;
• Requirements for suppliers to have better control over the key assets they need to run their supply business;
• A tightening of the rules on the level of direct debits suppliers can charge customers, to ensure credit balances do not become excessive.
Jonathan Brearley, CEO of Ofgem, stated: “Today’s 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.
“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. Moving forward, all suppliers will have to have enough working capital to run, without putting their customers’ credit balances at risk. 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.”
Credit balances and consumer bills
When an energy supplier fails, Ofgem’s safety net means its customers are moved to a new energy supplier with their credit balances intact.
Under current rules, the new supplier does not get the customer credit balances from the failed supplier, so the costs of replacing those balances are currently shared across all consumer bills.
A similar arrangement is in place for money paid through customer bills to the Renewables Obligation, the government’s green levy scheme.
The cost of moving customers to new suppliers from 28 failed suppliers since September 2021 was £94 ($115) per household. This includes new suppliers having to buy extra gas at short notice while prices were at record highs and replacing lost customer credit balances and green levy/renewables payments.
Coming in a year after the energy supplier failures experienced last year, these proposals form part of Ofgem’s plan to build longer-term resilience in the market by encouraging sustainable business models and stopping risky behaviour.