Restricting Ofgem will prevent energy suppliers from excessively increasing direct debits. Photo: Getty
The UK’s energy regulator has announced new plans to protect consumers who pay their bills by direct debit to “ensure that credit balances do not become excessive”.
Ofgem has accused some energy companies of using the accumulated credit of customers as an “interest-free corporate credit card”.
The new financial measures will also ensure that suppliers can withstand future shocks, he said, adding that suppliers will be able to “withstand the ongoing storm” of industry challenges, especially in the autumn and winter.
The announcement on Monday comes after the energy price cap jumped 54% in April and average bills rose by £ 693 ($ 849) a year to about 18 million households at standard rates and £ 708 to 4.5 million prepaid customers.
Prices are expected to rise to more than £ 2,600 a year in October, when the ceiling is revised.
Read more: Energy bills: Ofgem plans frequent price reviews
As the regulator declares repression as households face a cost-of-living crisis amid rising energy, fuel and food prices, what do the changes mean for customers?
What are the changes?
Ofgem has proposed changes to tighten the rules on the level of direct debits that providers may charge.
He also wants to protect credit balances when companies fail so that costs are not passed on to customers.
This comes after a series of high-profile closures associated with high wholesale oil and gas costs. Rising wholesale natural gas costs, exacerbated by the war in Ukraine, have brought energy bills to record highs in recent months.
About 28 energy suppliers have gone bankrupt since September 2021 as a result of rising wholesale energy prices. Consumers paid an average of an additional £ 94 each to cover the cost of switching to new suppliers.
The supervisory body, which regulates the accounts of 23 million households, said companies would need to have enough working capital to operate without risking their customers’ credit balances.
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Jonathan Brierley, CEO of Ofgem, said: “By ensuring that suppliers operate well-funded, sustainable and have more sustainable business models, we can avoid the failures of suppliers we saw last year, which caused great stress and concern and added costs for everyone. accounts.
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“But if some still fail, consumer credit balances and payments for green fees / renewables will be protected. They are currently used by some providers as an interest-free corporate credit card.
“Today’s proposals will ensure that customers’ hard-earned money is properly protected, so the company must take over the bill if it fails instead of consumers taking the bill.
Watch: Why are gas prices rising?
What does this mean for consumers?
Ofgem said the changes would reduce the risk of bankruptcy for suppliers and protect the credit balances of energy customers if they did.
When energy suppliers failed, Ofgem’s existing safety net meant that two million consumers were relocated to a new provider with intact credit balances last year.
However, under the current measures, new suppliers do not receive the customer’s credit balance transferred from the failed provider. This means that the cost of replacing these balances is shared between all customer accounts.
The new rules ensure that customers move quickly to a new provider with intact credit balances if a provider fails, according to the regulator.
Proposals, which still need to be finalized through consultation, would mean that suppliers must protect their customers’ money if they go bankrupt and hand over the funds from credit accounts to the substitute supplier.
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Gillian Cooper, head of energy policy at Citizens Advice, said: “Ofgem has previously allowed energy suppliers to manage risky business models. As a result, customers were left to take over when companies collapsed.
“I am pleased that Ofgem has heeded our warnings and taken the necessary steps to address some of the root causes of these problems.
“Now we need to ensure that providers adhere to these stricter standards so that people are better protected in the future.”
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