The British energy regulator has announced its intention to better protect customers who pay their bills by direct debit.
Ofgem has accused some companies of using customers’ accumulated credit as an “interest-free corporate credit card”.
The proposals include tougher rules on the level of direct debits providers can charge to “ensure that credit balances do not become excessive”.
Ofgem also wants to protect credit balances in the event of supplier default so that costs are not borne by customers.
This follows a series of high-profile shutdowns linked to high wholesale oil and gas prices, made worse by the war in Ukraine.
Around 30 energy companies have gone out of business in the UK since August last year, including Bulb which had 1.7 million customers.
Ofgem said it wanted to “prevent the kind of energy supplier failures we saw last year and better protect consumers’ money in the event of failure”.
Ofgem added that the closures were “causing unfair and unnecessary costs and worries for consumers”, as thousands of people raced to see who would fill the void left by their supplier.
Improving the financial health of energy suppliers over the autumn and winter would help reduce the risk of default, Ofgem added.
The cost of moving customers to new suppliers since September 2021, including purchasing additional short-term gas when prices were at record highs, as well as replacing lost customer credit balances and levy payments greens, was £94 per household, according to the regulator.
Under the current rules, the new supplier does not obtain credit balances from the failing supplier’s customers, so the costs of replacing those balances are shared among all customer invoices.
The new plans, which have yet to be finalized through consultation, would mean energy companies would have to protect their customers’ money in the event of bankruptcy and transfer funds from accounts payable to the replacement supplier.
Ofgem said it hoped the measures would stop “risky behavior” by energy companies.
Jonathan Brearley, chief executive of Ofgem, said: “Today’s proposals will ensure that customers’ hard-earned money is properly protected, so that a business has to foot the bill if it fails, rather consumers don’t foot the bill.”
He told the BBC that “no doubt” some companies were using credit balances in ways they should not have had last winter.
“We want to tighten up those rules to make sure that doesn’t happen,” he added.
Millions of domestic gas and electricity customers cover their bills with the same direct debit each month.
When they have paid for more energy than they have actually consumed, a credit balance accumulates.
Thirty companies went bankrupt last year. Their customers were automatically transferred to new suppliers.
But, while their credit balances were honored, the cost of doing so was covered by increasing everyone’s bill.
Today, Ofgem is proposing that companies hold more capital so that credit balances are better protected, and that the tab is not supported by all bill payers if this supplier collapses.
High credit balances have been a source of long-term frustration for customers, many of whom feel they are simply giving a free loan to their supplier.
The regulator says these proposals should prevent the accumulation of excessive overpayments.
Citizens Advice said it was correct for Ofgem to tighten rules which have until now left customers to bear the cost of business failures.
“Ofgem has already allowed energy suppliers to use risky business models. We are pleased that it has heeded our warnings and is taking the necessary steps to address some of the root causes of these issues,” said Gillian Cooper, the charity’s energy manager. Politics.
Chris O’Shea, chief executive of Centrica – the owner of British Gas, said his company had already voluntarily isolated customer credit balances and said regulation needed to be faster.
“We welcome this consultation but are concerned about the time it will take to make the necessary changes and urge Ofgem to work with greater urgency to fully protect customers and avoid the events of the last year do not happen again,” he said. .
The proposals mark the next step in Ofgem’s wider plan to tackle power outages, which already includes tougher entry requirements for new suppliers and carrying out regular ‘stress tests’ – to s’ ensure businesses are financially able to operate.
Oil and gas prices have soared in recent months, fueled by the lifting of lockdowns and the war in Ukraine.
Food and fuel costs are also rising, with consumer prices rising at their fastest rate in 40 years.
The typical UK energy bill set to see a further £800 increase in Octoberwhen the energy price cap – the maximum price suppliers can charge customers in England, Scotland and Wales – rises again.