Energy regulator Ofgem has proposed a series of measures designed to protect customers’ credit in the event that their supplier becomes insolvent.
There are currently more than 40 different energy providers on the market at the moment, and as that number grows, the chance that one may go bust does increase.
If a supplier does become insolvent, under current rules, Ofgem is obliged to appoint a replacement supplier for each of the insolvent supplier’s existing customers, ensuring that no one is without energy at any point.
Since the majority of customers pay for their energy supply by means of direct debit payments spread evenly throughout the year, they generally fluctuate between being in debit in winter months, when use is high, and in credit during summer months, when use is lower.
“Ofgem estimates that it would not be unusual for a typical customer’s credit balance to peak at a little over £100 each year” said a statement on their website.
However, prior to Ofgem’s latest proposals, there were no measures in place to guarantee protection of the cash of customers who are in credit if their supplier happens to go bust.
Generally speaking, Ofgem will try and “take into account who can best protect consumers’ credit balances” when they do appoint a new supplier. Many suppliers are prepared to take on customers in credit, and to reimburse them its value, as doing say pays off in terms of the acquisition of several new customers. However, this is not always possible.
As such, Ofgem is now “proposing to allow, on a case by case basis, the costs of reimbursing customers balances to be spread across all energy customers.”
This, they say, “would better protect customers’ money and have a small impact on bills.”
A spokesperson for Ofgem said: “Our priority if a supplier goes out of business is to ensure a continuous supply and to protect consumers’ credit balances and to do so via the existing protections and new proposals.
“However, we recognise that it is important to consider the distributional impacts on different customer groups on a case by case basis.”
It is not clear exactly how much average household energy bills will be affected by the changes, but Ofgem have assured that the impact would be small. Further, as they said, “supplier failures are rare”. Indeed the most recent instance of an energy supplier going insolvent occurred back in 2008, when business energy providers Energy4Business failed to keep up with increasing wholesale costs.
Rachel Fletcher, senior partner for Consumers and Competition at Ofgem, said: “We are proposing a safety net to protect customers’ credit balances in the unlikely event of a supplier failure. There are big savings to be made from switching of around £200-£300 and now over 40 suppliers to choose from. These protections are designed to give people peace of mind so they can have complete confidence to shop around for the best deal.”
Tom Lyons at uSwitch spoke positively of the regulator’s proposals.
He said: “With more and more energy suppliers entering the market, it’s essential that strong consumer protection measures are in place. In the unlikely event that an energy supplier goes out of business, it’s only right that the credit balances of consumers should be protected, in addition to ensuring their energy supply is guaranteed.
“We welcome these proposals from Ofgem, which, if implemented, will give customers increased confidence when shopping around.”
