Ofgem has announced new ‘tough’ financial measures to help prevent future energy supplier failures, in a bid ‘to better protect consumers’ money’.
The plans are aimed at improving the financial health of energy suppliers, reducing the risk of more suppliers going bust, and to stop firms raising customers’ direct debit payments by more than necessary.
Ofgem said its measures would help suppliers endure future shocks in the energy market, especially over the autumn and winter, where the price cap is expected to rise to more than £2,800.
Ofgem have announced new measures which will help protect customers money if future energy suppliers go bust, and help suppliers endure future shocks in the energy market
The shake-up is intended to ensure that suppliers ‘can weather the ongoing storm’ and to prevent a repeat of last year’s failures ‘that put unfair and unnecessary costs and worry on to consumers’.
The industry regulator also said the new measures would stop energy suppliers using some of their cash ‘like an interest-free company credit card’.
Ofgem added that if some did still fail, customer credit balances and green levy payments would now be protected.
When a supplier fails, customers are supposed to be moved to a new energy supplier with their credit balances intact, however, with the existing rules, the new supplier currently does not receive customer credit balances from the failed supplier.
This means the cost of replacing previous credit balances is spread across all consumer, resulting in significant energy bill increases.
The regulator’s proposed rules would mean that suppliers would be required to place customer funds in a separate account, ensuring that any overpaid credit would be preserved in the event of a collapse.
‘Currently, they are used by some suppliers like an interest-free company credit card,’ said Jonathan Brearley, the chief executive of Ofgem.
‘Moving forward, all suppliers will have to have enough working capital to run, without putting their customers’ credit balances at risk.’
Last month, some suppliers were found to have been increasing people’s direct debit payments by more than was necessary in order to recuperate their losses.
Business secretary, Kwasi Kwarteng, accused energy firms of overcharging customers on purpose to shore up their own finances.
While energy companies are allowed to increase customers’ direct debits based on estimated energy use and rising tariffs, some appear to be exploiting the situation to shore up their balances, by demanding bigger than necessary payments.
Ofgem said its proposed changes also included a tightening of the rules on the level of direct debits that suppliers can charge customers, ‘to ensure credit balances do not become excessive’.
Around 30 energy suppliers went bust last year after wholesale energy skyrocketed triggering widespread losses, and the subsequent price cap increased 54 per cent in April.
And following the £700 increase in April, the regulator indicated that it was set to rise again by more than £800 to around £2,800 in October.
This increase is expected to push inflation above 11 per cent later this year.
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