Centrica boss calls for greater protection for credit balances

Chris O’Shea has called for suppliers’ licences to be revoked if they fail to ensure that customer credit balances are “properly” protected.

In a letter to the Business, Energy and Industrial Strategy (BEIS) Committee, seen by Utility Week, the Centrica chief executive outlined licence revocation as one of the “robust sanctions” which should be put in place to safeguard credit balances.

He wrote that Ofgem should be take “swift and decisive action” in adopting the necessary legal and regulatory framework to ensure suppliers have resilient business models to manage the financial risks that they face.

A “key element” of this framework should be the introduction of “clear and enforceable” obligations to protect customers’ credit balances.

In his letter, O’Shea called for Ofgem to introduce a legal requirement on all energy companies to follow Centrica’s move to ringfence advance payments by customers in a separate account, which was announced last month

Specifically, he urged the regulator to establish robust sanctions on suppliers that fail to ensure that customer credit balances are “properly protected”.

These could range from an “immediate prohibition” on sales to the “ultimate” option of licence revocation if measures are not adopted within a “reasonable timeframe”.

O’Shea wrote that such draconian actions are “particularly urgent” because the rise in the level of the price cap from next month means knock on increases in energy customers’ debits, which will lead to a “materially higher” level of deposits.

He concluded: “We can’t afford to miss another opportunity to implement a regulatory regime that provides meaningful protection for energy customers.

“Consumer trust in energy companies has been damaged by the recent crisis and reform is urgently needed to rebuild confidence in the sector.”

O’Shea wrote that a “large number” of suppliers have used customer credit balances to fund “unsustainable” commercial models and subsequently collapsed, resulting in the disappearance of £500 million of UK customers money.

The letter followed an appearance by the Centrica boss’ at the BEIS Committee last month.

The letter follows an appearance by the Centrica boss at the BEIS committee last month, which also saw Jonathan Brearley grilled.

In separate correspondence, the Ofgem chief executive fleshed out his response to concerns expressed by the committee that auto-switching services have transferred customers onto lower tariffs offered by suppliers with limited financial resilience, some of which have subsequently gone bust.

He wrote that auto-switching has made a “relatively limited” contribution to the recent spate of supplier failures in the energy market.

But while suppliers taking on a large number of customers “unexpectedly”, such as via auto-switching, has not been a “material factor” in recent supplier failures, Ofgem has seen a “small number” of cases where suppliers have subsequently encountered difficulties, such as maintaining high levels of customer services, he added.