Ofgem announces new energy rules but ‘fails to protect’ customer deposits |  Ofgem

Ofgem announces new energy rules but ‘fails to protect’ customer deposits | Ofgem

The energy regulator has strengthened its rules to protect households after taxpayers were left to pick up a £9.2bn bill when suppliers went bust – but it was criticized for failing to protect consumer deposits.

Ofgem has announced a package of reforms designed to strengthen consumer protection and ensure energy suppliers are more resilient to market shocks.

Almost 30 energy suppliers have collapsed since the start of the energy crisis. The Bulb collapse, by far the biggest failure, has been estimated to cost the taxpayer £6.5 billion alone, while the remaining failures will cost consumers around £2.7 billion. Many of the failures were due to the weak balance sheets of the suppliers, which were exposed when the wholesale price of gas began to rise rapidly.

In response, Ofgem is proposing a number of reforms, including setting a minimum amount of capital that suppliers must hold – in order to reduce the risk and costs of supplier failure.

However, the UK regulator said it would only “closely” monitor the use of credit balances. Some energy companies, including British Gas owner Centrica, have argued that customer credit should be restricted to prevent suppliers from using consumers’ money for other business purposes. Rivals, including Octopus, have proposed cheaper alternatives.

Centrica chief executive Chris O’Shea hit out at the decision, accusing Ofgem of an “abdication of responsibility”.

He said: “When customers pay up front for their energy, they trust their supplier to look after their hard-earned money. They would be horrified to learn that their money was being used to fund day-to-day business activities, but that’s exactly what happens in some companies, and it undermines confidence in the market.

“If and when a major supplier fails, the recklessness of the decision not to address this issue will be clear to all.”

Ofgem said if the use of customer balances was found to be “reckless”, it would take further action.

Consumers usually pay too much in relation to their consumption in the summer months, and build up large advance deposits with suppliers, which are then run down through the winter.

Ofgem’s chief executive, Jonathan Brearley, has previously said that some energy companies use customers’ credit balances “like an interest-free company credit card”.

He said on Friday: “We want suppliers to be able to be innovative and dynamic, while ensuring that they are financially stable and that customers’ money is protected.

“This is a delicate balance, and while Ofgem wants well-capitalised businesses that can withstand price fluctuations, we also don’t want to block the market for new suppliers or force suppliers to sit on a lot of capital they could invest in innovative ideas. We are seeking views across of the industry, and recognizes the different business models the suppliers have, if we have found the right balance between resilience and competition.”

Ofgem tried to improve competition in the market but has been criticized for being too slow to act as the energy crisis escalated and many of the new entrants failed.

The new rules will also require suppliers to limit the money needed to buy renewable energy.

Ofgem announced consultations on a number of other reforms, including reviews of suppliers’ return on investment and updates to the price cap. The reforms are expected to start next spring.

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