Energy regulator Ofgem is today (Monday 20 June) announcing the
next steps in their plans to prevent the kind of energy supplier
failures we saw last year and to better protect consumers’ money
if they do fail.
The plans set out tough new measures to improve the financial
health of energy suppliers meaning they can stand up to future
shocks in the energy market, especially over the autumn and
winter.
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, 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 their
suppliers do, preventing a repeat of last year’s failures that
put unfair and unnecessary costs and worry onto consumers.
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.
, 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 its
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, 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.
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. Ofgem is creating a market
that is better prepared for the significant ongoing challenges as
we move towards autumn and winter. And today’s consultations are
further work to ensure that energy companies meet the high
business and delivery standards that consumers expect, especially
now, and that consumers do not bear unreasonable costs from
company failures.
Ofgem’s priority is to protect consumers, particularly
considering the cost-of-living pressures that all households are
experiencing. These proposed measures are part a package of
reforms introduced over the last year to improve the retail
energy market, accelerating a reform programme that started in
2019 including:
- Stricter entry requirements for new suppliers
- Ensuring people who start and run energy companies are fit
and proper people to do so
- Carrying out regular stress tests to ensure energy companies
are resilient to volatile market conditions.
ENDS
Notes to Editors
*Definition of fuel poverty Fuel poverty statistics -
GOV.UK (www.gov.uk)
Proposals today:
- Proposals to better protect consumer credit
balances and RO payments in the event of company
failure, to prevent the costs being mutualised.
- Proposals to improve the capital adequacy of
suppliers, to ensure they have sufficient capital to
survive critical periods.
- Requirements for suppliers to have sufficient
control over the key assets they need to run their
supply business, meaning they are less exposed to failures in
another business.
- Strengthening existing Direct Debit payment
rules to help prevent excessive credit balance
build up.
