Suppliers are split on Ofgem’s ringfencing proposals

A schism has emerged in the energy retail sector as companies present wildly different views on Ofgem’s proposals not to require the ringfencing of consumer credit balances, an industry expert has told Utility Week.

Citizens Advice’s chief economist said the charity was being approached by suppliers who all have different perspectives on the issue, with no sign of consensus.

Ofgem initially planned for retailers to ringfence credit balances so they could be transferred to a new supplier in the case of a market exit.

There was a mixed response from some of the market’s larger suppliers, with the plans being praised by Centrica boss Chris O’Shea but heavily criticised by Octopus Energy chief Greg Jackson.

The regulator subsequently rowed back on the proposals, instead opting to set a “monitoring threshold” to avoid over reliance on the funds to support supplier businesses.

It has further proposed new powers allowing it to order individual suppliers to ringfence their credit balances when they are at risk of not meeting or do not meet the requirements set out in the enhanced Financial Responsibility Principle (FRP) and/or the minimum capital requirement.

Speaking to Utility Week Richard Hall, chief energy economist at Citizens Advice, said of the proposals: “Suppliers are quite split on this. Several have approached us for meetings and discussions to put their case for what they think the solution should be.

“In some cases they want something tougher than what Ofgem is proposing and don’t think it’s going far enough, others think it’s going too far and some essentially saying Ofgem’s broadly got it right.

“So suppliers aren’t really speaking with a single voice on this issue, there’s a range of views out there.”

In the charity’s response to Ofgem’s consultation, Hall said the discretionary approach being proposed by the regulator “worries” the charity as it relies heavily on its ability and willingness to identify problems and step in.

He explained his thoughts further: “Ofgem needs to demonstrate that it can enforce this properly. So it needs to show that it has expanded its monitoring and enforcement headcount and expanded its focus to allow it to pick up on issues earlier and to address them before they become crisis issues.”

Hall was further asked about recent reports that Centrica was seeking support from Citizens Advice for its proposals to require suppliers to disclose to their customers whether their credit balances would be fully protected if they went bust.

He said: “Our initial view on that is that it’s potentially problematic because if their supplier tells them that they haven’t ringfenced it may imply to consumers their cash balance is at risk if that supplier were to go bust.

“In practice, that’s not the case because if a supplier goes bust, consumer credit balances are honoured through the Supplier of Last Resort process. That doesn’t mean there isn’t an overall cost to consumers. Because supplier failure costs are essentially mutualised there is obviously clearly a cost associated with covering the credit balances of customer accounts where suppliers failed.

“Nonetheless, for the individual consumers concerned, they don’t lose their credit balances if a supplier fails.”