Ofgem has put in place a new safety net to protect consumers in the unlikely event their supplier goes out of business. The existing “supplier of last resort” regime already guarantees that people will continue to receive their energy supply.
Following the consultation which began in June, Ofgem has now taken action to protect customers’ credit balances as well to give full peace of mind when choosing a supplier. It’s rare for a supplier to go out of business. If it happens, under the supplier of last resort process, Ofgem appoints a replacement supplier to ensure that customers continue to be supplied with energy. But there may also be a risk to customers’ money if their account is in credit. As direct debit payments spread the cost evenly throughout the year, customers typically build up credit during summer which might peak at just over £100. This credit covers the cost of customers using more energy during the winter.
As unsecured creditors, these customers are unlikely to get their money back if their supplier becomes insolvent. However, under the new safety net, Ofgem will now take into account who can best protect consumers’ credit balances as part of the process for selecting a replacement supplier. Where necessary, Ofgem would allow the replacement supplier to recoup the cost of reimbursing the credit balances through an industry levy. This levy, which would be spread across all energy customers, would only have a small impact on bills.
Ofgem’s senior partner for Consumers and Competition, Rachel Fletcher said: “It’s important that people are fully protected in the unlikely event a supplier goes out of business. Our safety net gives peace of mind so they can have complete confidence to shop around for the best deal.”