Ofgem acts to protect customers in credit if their energy supplier goes bust

Energy regulator Ofgem has refined its ‘supplier of last resort’ arrangements – which take effect when an energy company fails – so that customers who are in credit with the failed supplier are less likely to lose their cash.

Ofgem will consider the use of a levy on gas transporters and electricity distributors to allow energy customers to get back any credit balance when an energy company goes bust.

Electricity and gas suppliers’ licences permit them, in some circumstances, to make a claim for unrecoverable costs that they have incurred in being a supplier of last resort. Gas transporters and electricity distributors would fund this through a levy on distribution use of system (DUoS) charges.

The regulator said in new guidance, that: “Claims under the industry levy will continue to be considered on a case-by-case basis but those made in support of measures to address the loss of balances would be within the circumstances for which we consider approving a claim.”

Ofgem will also ask any energy companies that bid to be supplier of last resort how they would address any loss of customer credit balance as part of the process of choosing which company will take on the failed companies’ customers.

When the prospect of protecting customer credit balance was first floated, Doug Stewart, chief executive of Green Energy, said: “Whilst Ofgem says supplier failures are rare, these proposals highlight a very real risk that exists in the retail energy market – suppliers offering savings of £200-300 that aren’t sustainable and some suppliers using customers money to fund their working capital. Established energy companies bill their customers in arrears, new entrants, by and large, take cash up front to use in their business which means consumers never see the benefit of the so called £200-£300 savings.

“Ofgem speaks about restoring trust in the energy market: they are right but this proposal isn’t a solution.  It simply masks an unwelcome and unnecessary risk that doesn’t need to exist. Customers deserve better.”

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