Ofgem proposes ‘safety net’ to protect consumer cash

Ofgem has published proposals designed to protect consumers’ credit balance in the event that their energy supplier goes out of business.

Under current arrangements, Ofgem will appoint a replacement supplier to the customers of a supplier that has become insolvent.

However, the regulator warned that this may cost customers whose accounts are in credit. As direct debit payments spread the cost evenly throughout the year, energy customers will often be in debit during the winter and build up credit in the summer, the regulator said.

Under new proposals, Ofgem would consider which supplier can best protect a consumer’s credit balance. The regulator also proposes to allow, on a case by case basis, the costs of reimbursing the credit balances to be spread across all energy customers – which would better protect customers’ money, and have a smaller impact on bills.

Ofgem’s senior partner for Consumers and Competition, Rachel Fletcher said: “We are proposing a safety net to protect customers’ credit balances in the unlikely event of a supplier failure.

“There are big savings to be made from switching of around £200-£300 and now over 40 suppliers to choose from. These protections are designed to give people peace of mind so they can have complete confidence to shop around for the best deal.”

Ofgem estimated that a typical customer’s credit balance could peak at more than £100 per year.

Independent supplier Green Energy said the proposals highlight a “real risk” in the retail energy market that suppliers are offering savings that aren’t sustainable, despite Ofgem insisting that supplier failures are unlikely.

The firm’s chief executive Doug Stewart said: “Established energy companies bill their customers in arrears, new entrants, by and large, take cash up front to use in their business which means consumers never see the benefit of the so called £200-£300 savings.

“Ofgem speaks about restoring trust in the energy market:  they are right but this proposal isn’t a solution. It simply masks an unwelcome and unnecessary risk that doesn’t need to exist. Customers deserve better.”