Britain’s energy regulator has promised to crack down on electricity and gas suppliers setting households’ direct debits too high, after the government complained some companies were raising monthly payments “beyond what is required”.
Ofgem will publish several proposals on Monday aimed at preventing a repeat of the crisis of last autumn and winter, when nearly 30 energy suppliers went bust as record wholesale gas prices exposed deep flaws in their business models. Those supplier failures cost households £94 each, as they had to meet the costs of transferring stranded customers to new providers.
Among the proposed reforms, Ofgem plans to tighten rules on the level of direct debits suppliers can charge customers to ensure credit balances “do not become excessive”.
The proposals also include rules to protect customer money when suppliers fail so that other households do not have to pick up the bill for those bankruptcies.
Jonathan Brearley, Ofgem’s chief executive, warned that some companies used customers’ money “like an interest-free company credit card” but said they would be forced in future to ensure they have enough working capital to operate “without putting . . . credit balances at risk”.
Some customers complained last year that their suppliers had raised their monthly payments by inexplicable amounts before they went out of business.
Earlier this year, the government asked Ofgem to investigate direct debits. Business secretary Kwasi Kwarteng said in May that some energy suppliers had been “increasing direct debits beyond what is required”, even though bills rose in April by an average of 54 per cent after the regulator raised the energy price cap, which dictates bills for 23mn households.
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, 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”.
Gillian Cooper, head of energy policy at the consumer watchdog Citizens Advice, said Ofgem had “previously allowed energy suppliers to run risky business models” but said she was glad the regulator had finally “listened to our warnings and is taking necessary steps to tackle some of the root causes of these issues”.