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The boss of Britain’s biggest energy firm has praised Ofgem for its plans to introduce new capital adequacy requirements and ringfencing, but has called for the rules to be tightened further still.
Earlier this week the energy regulator confirmed it was going ahead with plans to bolster financial resilience in the energy retail market.
These include the introduction of a minimum capital requirement for suppliers, as well as plans which will allow it to direct retailers to ringfence a portion of their consumer credit balances (CCBs) when it deems it to be in the consumer interest.
Speaking following the announcement of his company’s H1 financial results, in which it posted a record profit, Centrica chief executive Chris O’Shea welcomed the move by Ofgem.
He further confirmed British Gas currently has around £600 million in credit balances, which it already ringfences voluntarily.
Commenting on Ofgem’s announcement, he said: “We think that’s a great start. We think they could and should go a lot further. £115 capital per customer is a bit low. I heard somebody mention a number before of about £700, that’s in one of the very large challenger businesses. So that could go higher, but it’s a very, very good start.”
“What we’d like to do is to work with Ofgem in the coming months to see how can we tighten this so that we can protect consumers so they never again have to face this additional regressive tax that they have got at the moment,” he added, referring to the additional costs that all UK energy consumers are paying as a result of failed suppliers.
In its decision document the regulator confirmed that the common minimum capital requirement will comprise a capital floor of £0 still, but a capital target of £115 adjusted net assets per domestic dual fuel equivalent customer. Ofgem said that it was removing intangible assets from the definition of capital.
“These changes will ensure that the capital being used to meet our requirements is of sufficient quality to meet our resilience policy objectives and reduce mutualised costs, and that the level of capital is sufficient to improve resilience while remaining proportionate,” Ofgem said.
It added that the floor and target would still be supported by the capitalisation plan framework which it previously announced.
It is further proceeding with proposals to ringfence CCBs in circumstances where suppliers are not meeting the capital target and where they do not have sufficient funds to refund customer balances in “a severe but plausible switching event – the Cash Coverage trigger”.
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