Ofgem shelves proposals to ringfence customer credit balances

Ofgem shelves proposals to ringfence customer credit balances

Updated: 6 days, 3 hours, 51 minutes, 21 seconds ago

Ofgem has proposed new rules to strengthen Britain's energy market and protect consumers, but the regulator has abandoned plans to force suppliers to ringfence customer credit balances.

The reforms are designed to avoid more energy firms from going bust, and include setting a minimum amount of capital that suppliers must hold and requiring suppliers to ringfence the money needed to buy renewable energy.

However, the regulator fell short of ringfencing customer balances too, as it had previously proposed, instead insisting it will only 'closely monitor' how firms use their customers' money. 

Energy bills: Ofgem said it will only 'closely monitor' how firms use their customers' money Energy bills: Ofgem said it will only 'closely monitor' how firms use their customers' money

Energy bills: Ofgem said it will only 'closely monitor' how firms use their customers' money

British Gas owner Centrica criticised Ofgem's decision, with boss Chris O'Shea arguing the move is 'an abdication of responsibility' by the regulator.

'When customers pay up front for their energy, they are trusting their supplier to look after their hard-earned money,' he said.

'They would be appalled to learn their money was being used to fund day to day business activities, but that's exactly what's happening in some companies, and it undermines confidence in the market.'

After the collapse of around 30 energy suppliers over the past couple of years, it emerged that many of these now-defunct firms were misusing customers' cash to fund their own day-to-day business operations. 

Ofgem's chief executive himself previously said that firms must not spend customer cash as though it were an 'interest-free company credit card'.

However, the regulator said it would only 'reinforce' rules on how all domestic providers use customer balances, despite previous ringfencing plans being backed by most of the nation's biggest providers including E.ON and British Gas.

'The failure to protect customer balances has already ended up costing consumers hundreds of millions,' O'Shea added. 

'While some energy companies argue that prices will increase if they ring fence customer deposits, it shouldn't. 

'Energy companies must be adequately capitalised by their shareholders so that if they fail, the shareholders feel the pain, not UK consumers.'

Ofgem is proposing to introduce capital adequacy requirements to help to reduce the risk and cost of supplier failures. 

The regulator said it will also prevent suppliers from using cash destined for renewables for other scopes.

Ofgem's chief executive, Jonathan Brearley, said these proposals will provide 'protections, checks and balances for consumers, suppliers and the entire sector to create a more stable market'. 

'We want suppliers to be able to be innovative and dynamic, while also making sure they are financially stable, and that customers' money is protected,' he added.

'This is a delicate balance and while Ofgem want well capitalised businesses that can weather price fluctuations, we also don't want to block the market for new suppliers or force suppliers to sit on lots of capital they could be investing in innovative ideas.'

The proposals come just days after Ofgem singled out 17 energy providers for failing to properly protect vulnerable people after some customers were given debt repayments so high they could not afford to top-up their meters.

Yesterday the regulator also announced that its price cap for average household energy bills would rise by 21 per cent to £4,279 annually for the period from January to March 2023.

But households won't be subject to that cap, as the Government will subsidise their energy costs with its Energy Price Guarantee. 

That will limit the amount paid by the typical UK household to £2,500 a year until the end of March 2023.