Ofgem unveils plans to prevent energy supplier collapse amid price volatility
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UK energy regulator Ofgem has announced plans to prevent a raft of supplier failures like those seen last year, and to better protect consumers’ money when companies collapse.
The plans set out tough new measures to improve the financial health of energy suppliers so that they can withstand future shocks in the energy market, especially over the autumn and winter.
The proposed changes include protecting consumer credit balances and green levies when suppliers fail, to prevent the costs being picked up by consumers.
There will also be new requirements for suppliers to have better control over the key assets they need to run their supply business, and a tightening of the rules on the level of direct debits suppliers can charge customers, to ensure credit balances do not become excessive.
These changes will reduce the risk of suppliers going bust and protect the credit balances of energy customers if this does happen, preventing a repeat of last year’s failures.
The cost of moving customers to new suppliers from 28 failed suppliers since September 2021, including 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, was £94 per household.
Jonathan Brearley, CEO of Ofgem, said: “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.”
When an energy supplier fails, Ofgem’s safety net means customers are quickly moved to a new energy supplier with their credit balances intact.
This protected over 2 million customers last year. But 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 plans announced today would mean energy retailers are required to protect their customers’ money.
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.
In May it was announced that the energy price cap will rise again in October, from £1,971 to £2,800 a year.
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