Ofgem: Suppliers still using customers as ‘interest-free credit cards’

The energy regulator is pushing ahead with plans requiring suppliers to ringfence customer credit balances and Renewables Obligation (RO) payments.

In a policy consultation on strengthening retail financial resilience, Ofgem stresses it wants to support an environment where “retail suppliers are financially resilient, and where risks are not inappropriately passed to consumers”.

The consultation sets out Ofgem’s proposals to protect customer credit balances and RO payments, so they can be transferred to a new supplier in the case of a market exit. It also sets out its initial thinking on how failed supplier’s hedges can be passed on and calls for all suppliers to be required to maintain “sufficient minimum levels of capital to survive market shocks”.

Two further consultations have been issued on control of key assets needed to run supply businesses and on strengthening direct debit payment rules to help prevent “excessive” credit balance build up.

The former sets out Ofgem’s concern that some failed suppliers had structured their businesses so that key assets, such as premises, staff and brand names, were held a parent company. It plans to enshrine obligations on retailers to ensure they own these assets within the supply licence.

The latter reiterates calls for an obligation on suppliers to ensure direct debits are calculated using “the best and most current information available”.

Ofgem chief executive Jonathan Brearley said: “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.”

The regulator is seeking is seeking responses to the consultations by 19 July to inform its next steps.

Centrica’s chief executive Chris O’Shea welcomed the proposals but said he was “worried at the length of time it is taking to make the changes necessary”. He urged Ofgem to “work with greater urgency to protect customers fully and to prevent the events of last year ever happening again”.

He added: “While some energy companies argue that prices will increase if they have to ring fence customer deposits, they won’t. Energy companies must be adequately capitalised by their shareholders so that if they fail, the shareholders feel the pain, not the hard pressed UK consumer – it really is as simple as that.”

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