How new Ofgem measures are aimed at protecting the money of energy customers

Ofgem said the proposed measures were aimed at reducing the risk of more energy suppliers going bust. Credit: PA

The energy regulator, Ofgem, has unveiled new plans to protect customers and suppliers from future price hikes.

It said the new financial measures - designed to protect consumers’ money - are in part aimed at reducing the risk of more energy suppliers going bust, after around 30 collapsed within the space of a year.

The new plans, which still need to be finalised through a consultation, come as the energy crisis deepens with bills due to reach over £2,000 a year this October when the price cap is next reviewed.

You can check how the energy price cap affects you here.

So what are Ofgem's new plans and how will they change rules on credit balances in event of collapses?

What is contained within the proposals?

Ofgem wants to protect credit balances when suppliers fail so the costs are not passed onto customers.

A safety net will mean customers are quickly moved to a new supplier with their credit balances intact if a supplier goes bust.

Currently, the new supplier does not receive customer credit balances from the failed supplier, so the costs of replacing these balances are distributed across customer bills.

The cost of moving customers to new suppliers since September 2021 was £94 per household, according to the industry regulator.

Ofgem said the proposed shake-up also included a tightening of the rules on the level of direct debits that suppliers can charge customers, in order to prevent credit balances becoming "excessive".

Under the proposals, the regulator also wants to ensure suppliers have enough money during trying circumstances and allow firms to have sufficient control over key assets.

Neil Connery explains what Ofgem's new measures mean for consumers

Why has Ofgem announced the plans?

Ofgem said it wanted to "prevent the kind of energy supplier failures we saw last year and to better protect consumers' money if they do fail."

Driven by a surge in wholesale gas prices, some 30 energy companies have stopped trading in the UK since August last year, including Bulb which had 1.7 million customers.

Ofgem said the measures were designed to improve the financial health of suppliers so that they could better deal with any future shocks - particularly during the autumn and winter.

"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," Jonathan Brearley, the chief executive of Ofgem, said. “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."

The regulator hopes the plan will stop "risky behaviour" from energy firms.

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What has the reaction to the proposals been so far?

Gillian Cooper, of Citizens Advice, welcomed the measures, saying it was correct for Ofgem to tighten the rules to help better protect consumers, who are already in the midst of a cost-of-living crisis.

“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," she said. “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.”

Chris O'Shea, chief executive Centrica - the owner of British Gas, said that he welcomes the proposals, but said Ofgem needed to act with greater urgency to protect consumers in the short-term.