Ofgem announces plans to stop energy firms overcharging customers on direct debits as it accuses suppliers of using the money like an ‘interest-free company credit card’
- More than 25 suppliers collapsed last year, squeezed by record energy prices
- Regulator said its measures were aimed at reducing the risk of more going bust
- The changes proposed included limits on payments billed via direct debit
- Also includes rules to protect money when company fails and customers moved
Britain’s energy regulator proposed new measures on Monday to protect consumers and prevent energy suppliers from charging high direct debit payments as households struggle to meet soaring energy bills.
Regulator Ofgem said its measures were aimed at reducing the risk of more electricity and gas suppliers going bust, preventing a repeat of the crisis of last autumn and winter.
More than 25 suppliers collapsed last year, squeezed by record-high wholesale energy prices.
The changes proposed on Monday included limits on payments billed via direct debit, to ‘ensure credit balances do not become excessive’, Ofgem said.
Ofgem accused some firms of using customers’ accumulated credit like an ‘interest-free company credit card’, the BBC reported.
Britain’s energy regulator proposed new measures on Monday to protect consumers and prevent energy suppliers from charging high direct debit payments (stock image)
The proposed package also includes rules to protect the money of users when a company fails and customers are moved to a new supplier with credit balances, ensuring households do not have to pick up the bill.
The cost of moving customers of failed companies to new suppliers was £94 ($115.08) per household, including new suppliers having to buy extra gas at short notice while prices were at record highs and replacing lost customer credit balances and green levy payments, Ofgem said.
Household energy bills in Britain look set to surge by another 40 per cent in October, Ofgem warned last month, deepening a cost-of-living crisis that is piling pressure on the government to do more to help the poorest.
Jonathan Brearley, CEO of Ofgem, said: ‘Today’s plans are another step in making sure the complex energy market is fair, resilient and works for everyone.
Jonathan Brearley, CEO of Ofgem, said: ‘Today’s plans are another step in making sure the complex energy market is fair, resilient and works for everyone’
‘The energy market remains incredibly volatile and there are a number of huge geopolitical issues continuing to apply massive pressure. Ofgem is working hard to ensure energy suppliers shore up their positions so they can weather the ongoing storm.
‘By ensuring that suppliers are operating well-financed, sustainable, and have more resilient business models, we can avoid the supplier failures we saw last year which caused huge stress and worry and added costs to everyone’s bills.
‘But if some do still fail, consumer credit balances and green levy/renewables payments will be protected. Currently they are used by some suppliers like an interest free company credit card.
‘Moving forward, all suppliers will have to have enough working capital to run, without putting their customers’ credit balances at risk. Today’s proposals will make sure that customers’ hard-earned money is properly protected so that a company must foot the bill if it fails, rather than consumers picking up the tab.’
What does this mean for consumers?
Ofgem has said the changes will reduce the risk of suppliers going bust and protect the credit balances of energy customers if they do.
A safety net ensures customers are quickly moved to a new supplier with their credit balances intact if a supplier fails.
Under current measures new suppliers don’t get the customer credit balance transferred from the failed supplier.
This means that the costs of replacing those balances are shared across all customers’ bills.
Gillian Cooper, of Citizens Advice, said: ‘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.’
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