Energy providers hit out at regulator’s plans to protect UK consumers

A pledge by the energy regulator to crack down on electricity and gas suppliers using customers’ credit balances like an “interest-free company credit card” has been condemned by providers as “inadequate” and slow.

On Monday, Ofgem published a range of proposals aimed at preventing a repeat of the crisis of last autumn and winter when nearly 30 energy suppliers went bust as a result of thinly capitalised balance sheets and a rise in wholesale gas prices. The cost of transferring stranded customers to new providers has added £94 to every household’s energy bills.

The regulator’s proposals include plans to tighten the level of direct debits suppliers can charge customers to ensure credit balances “do not become excessive”. They also include rules to ensure that companies are in better financial health and do not rely on consumer credit balances for their daily operations.

Centrica, which has already ringfenced customers’ money, welcomed the consultation but urged the regulator to act with “greater urgency to protect customers fully”.

“[Customers] would be appalled to learn their money was being used to fund day-to-day business activities, but that’s exactly what’s happening today,” said Chris O’Shea, chief executive of Centrica.

Consumers are paying much higher standing charges than they should be to replace about £400mn in disappeared money, “some of which reappeared in the pockets of wealthy private owners of failed suppliers”, O’Shea added.

Octopus Energy, the fourth largest energy retailer in the UK, said “more rigorous” market reforms were needed to protect customers’ money without inflating energy bills. 

It said that ringfencing customer balances would do nothing to fix the causes of failure whilst increasing the pressure on consumers by adding up to £30 to customer bills every year and raising supplier profits. 

Greg Jackson, chief executive and founder of Octopus Energy Group, said: “It’d be bonkers to raise customer prices and increase supplier profits when much cheaper alternatives would be at least as effective in protecting customers’ money. Crude ringfencing is financially illiterate, which is why it’s not used in other industries.”

Octopus is calling for an insurance protection policy for credit balances, comparable to the kind provided to holidaymakers (ATOL) and FSCS used to protect bank deposits.

Gillian Cooper, head of energy policy at the consumer watchdog Citizens Advice, said customers had “been left to foot the bill when companies collapse”. 

“We’re glad that Ofgem has listened to our warnings and is taking necessary steps to tackle some of the root causes of these issues.”

The regulator also recommended that the cost of failed companies should not be picked up by consumers and said suppliers should have better control over “the key assets they need to run their business”.

Ofgem has come under heavy attack since last year for its failure to prevent the crisis in the energy supply sector.

Many energy companies and consumer groups accused Ofgem of acting too late in the years before the crisis to respond to concerns over some suppliers’ risky business models and their directors’ suitability to run companies that provide a critical service.

Announcing the regulator’s latest plans on Monday, chief executive Jonathan Brearley warned that the UK and global energy markets remained “incredibly volatile and there are a number of huge geopolitical issues continuing to apply massive pressure”.

But he insisted Ofgem was “working hard to ensure energy suppliers shore up their positions so they can weather the ongoing storm”.