Ofgem announces new energy rules but fails to protect customer deposits |  Of average

Ofgem announces new energy rules but fails to protect customer deposits | Of average

The energy regulator tightened its rules to protect households after taxpayers had to pay a £9.2 billion bill when suppliers went bankrupt, but was criticized for failing to protect consumers’ deposits.

Ofgem has announced a package of reforms to strengthen consumer protection and make energy suppliers more resilient to market shocks.

Since the start of the energy crisis, nearly 30 energy suppliers have failed. The collapse of Bulb, by far the biggest failure, will cost taxpayers alone £6.5 billion, while the remaining failures will cost consumers around £2.7 billion. Many of the failures stemmed from weak supplier balance sheets, which came to light when the wholesale price of gas began to rise rapidly.

In response, Ofgem is proposing a series of reforms, including setting a minimum amount of capital that suppliers must hold reduce the risk and cost of supplier failure.

However, the regulator for Britain said it would only monitor the use of funds “closely”. Some energy companies, including Centrica, the owner of British Gas, have argued that customer credit should be foreclosed to prevent suppliers from using consumers’ money for other business purposes. Rivals, including Octopus, have suggested cheaper options.

Centrica CEO Chris O’Shea reacted strongly to the decision, accusing Ofgem of “abdicating responsibility”.

He said: “When customers pay for their energy upfront, they trust their supplier to take care of their hard-earned money. They would be shocked to learn that their money was being used to fund day-to-day business activities, but that is exactly what happens in some companies and it undermines confidence in the market.

“If and when a major supplier fails, the recklessness of the decision not to address this issue will be obvious to everyone.”

Ofgem said if the use of customer funds was “reckless”, it would take further action.

Consumers usually pay too much in relation to consumption in the summer months, accumulating large advances with suppliers, which are then used up in the winter.

Ofgem CEO Jonathan Brearley has previously said that some energy companies are using customers’ credits “like an interest-free corporate credit card”.

He said Friday: “We want suppliers to be able to be innovative and dynamic, while also ensuring they are financially stable and customers’ money is protected.

“This is a delicate balance and while Ofgem wants well-capitalized companies that can weather price fluctuations, we also don’t want to block the market for new suppliers or force suppliers to sit on a lot of capital that they could invest in innovative ideas. We are seeking opinions across the industry, recognizing the different business models suppliers have, on whether we have struck the right balance between resilience and competition.

Ofgem tried to improve competition in the market but was criticized for acting too slowly as the energy crisis escalated and many of the new entrants failed.

The new rules will also require suppliers to set aside the money needed to purchase renewable energy.

Ofgem announced consultations on a range of other reforms, including reviewing supplier return on investment and price cap updates. The reforms are expected to start next spring.

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