Ofgem today introduced tougher financial requirements on home energy suppliers, designed to stave off a repeat of last year’s collapse of 28 firms licenced by the regulator, for which it has faced wide criticism.
Suppliers’ ring-fencing of account holders’ credit balances and green levy payments will prevent them using the assets as working capital, equivalent to the worst suppliers, in the words of Ofgem boss Jonathan Brearley, “using them like an interest free company credit card”.
Ofgem reckons its safety net protected over 2 million customers last year from being cut off.
This October, 2022’s second revision of the regulator’s retail price cap is predicted by analysts to push to average dual fuel bills to around £2,800 per year.
In addition to past and future rounds of rocketing retail tariffs, every UK household has incurred an extra £94 cost from rules designed to soften blows to home customers of last year’s supplier slaughter, the regulator calculates.
Current rules prevent a rescuing supplier allocated by Ofgem from benefitting from customer credit balances held by the failed supplier. Costs of replacing those balances thus get shared across all consumer bills. The same happens with green levies such as the Renewables Obligation
The regulator’s other proposed changes today include
- capping the levels of direct debits which suppliers charge customers, avoiding swollen credit balances
- licencees needing to have firmer control over assets needed to guarantee energy supply
“The energy market remains incredibly volatile and there are a number of huge geopolitical issues continuing to apply massive pressure”, Brearley stated this morning.
“Ofgem is working hard to ensure energy suppliers shore up their positions so they can weather the ongoing storm.
The regulator sees today’s measures as in line with reforms begun in 2019, including
- Stricter entry requirements for new suppliers
- Tougher “fit and proper” tests on directors of would-be energy retailers
- More stress tests on licenced suppliers’ balance sheets
Anti-poverty charity Citizens’ Advice welcomed Ofgem’s tighter curbs. Gillian Cooper, its head of energy policy, commented:
“Ofgem has previously allowed energy suppliers to run risky business models. As a result, it’s customers who’ve 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.
“It must now ensure suppliers stick to these tougher standards so that people are better protected in the future”.