Ofgem investigating potential breaches of EBRS  

Ofgem has confirmed it is investigating potential breaches by some non-domestic suppliers in relation to their compliance with the Energy Bill Relief Scheme (EBRS).

The regulator has also said it will be engaging with some suppliers over “unexplained and significant price increases” in relation to their non-domestic customers.

Ofgem’s chief executive Jonathan Brearley has written to chancellor Jeremy Hunt, as well as to the energy security minister Grant Shapps, to update them on Ofgem’s review into the non-domestic energy supply market.

While he acknowledges that large parts of the market are showing signs of recovery from a “challenging period” of soaring and volatile energy prices, the regulator’s evidence so far suggests there remain areas of “significant concern”.

Specifically he noted that standing charges have increased significantly in some cases and that where this coincides with the start of the EBRS this will form part of Ofgem’s assessment of compliance with the scheme’s rules.

He added that Ofgem will require more evidence from the sector to assure compliance with EBRS rules.

“We will continue to work with suppliers and the Department for Energy Security and Net Zero and HM Treasury to understand and assure compliance. For some suppliers we are already investigating potential breaches through our compliance processes and will take enforcement action if necessary,” he said.

Brearley further revealed that Ofgem had found cases where the rates for deemed (default) contracts are higher than is explained by market conditions.

The regulator explained that over the last year there had been an increase of customers moving onto deemed contracts, particularly by business customers that use smaller amounts of energy.

The number of businesses on deemed rates increased by 16% for electricity and 18% for gas between October and November 2022.

It added: “Because a customer cannot choose the terms for deemed contracts, our rules ensure these default rates reflect the cost of supplying the customer and cannot be unduly onerous.

“Our review has shown that rates in general increased broadly in line with expectations as wholesale prices rose. But specific suppliers have unexplained and significant price increases. We will be engaging with them on their compliance with our license conditions.”

Elsewhere, the regulator’s review covers issues surrounding security deposits which are sometimes required by suppliers before an energy contract starts to cover their costs if a customer defaults and is unable to pay.

Ofgem explained that last year the monthly number of requested security deposits fluctuated around 400 per month for electricity and 150 per month for gas. However, this rose from September, doubling by November for electricity and rising by a quarter for gas.

It said: “For many power customers, the level of security deposits rose in alignment with rises in bills from August 2022, with a median value of around £10,000 by the end of the year. But the data shows that some customers faced dramatically higher requests for security deposits, especially towards November. This could have had a significant impact on these customers.

“For gas, the value of the security deposits suppliers requested was much higher in September – going from a median of around £30,000 before then, rising up to £68,000. This dropped to more typical rates by the end of the year. But some customers faced very steep increases from August.

“There was a peak in gas day ahead prices in August, which started dropping in September, albeit it was still high then. So, this could reflect different hedging strategies across suppliers. However, this behaviour does invite questions.”

Meanwhile Ofgem said the pricing behaviour by some suppliers raises concerns.

It found standing charge changes to be very variable across suppliers, which is to be expected as they allocate different costs into the standing charge.

“Unit rates have been steadily rising in line with wider market trends. But for some suppliers, we identified some particularly large increases within standing charges and/or unit rates. In some cases, the risk premia they were reporting also appeared unusual,” it added.