Credit, Collections & Insolvency News
Ofgem has announced that energy debt has reached £2.9 billion and may look to recover this by raising the price cap and increasing energy bills.
The energy regulator says that the scale of energy debt means that they must take action to protect market and ensure customers are protected from uncontrolled rises This follows an outline of action needed set out by the regulator in October this year: Ofgem explores options amid rising consumer debt | Ofgem
Bad debt refers to the amount of money owed by customers in the energy system, which is unlikely to be repaid.
Since January 2023, the price cap has fallen from £2,500, under the Government’s Energy Price Guarantee, to £1,928 in January 2024. However, energy prices are still high, and new figures published by the regulator today show that energy debt has reached almost £3 billion – its highest ever level – due to a combination of sustained high wholesale energy prices, and wider cost of living pressures, which have led to unpaid energy bills.
Ofgem says that the consultation has set out proposals for a one-off price cap adjustment of £16- equivalent to around £1.33 a month- to be paid between April 2024 and March 2025. The scale of this debt means that it is crucial that suppliers have sufficient funding to ensure they can meet the strict regulations Ofgem has in place around how they treat customers facing payment difficulties. This adjustment to the price cap will ensure suppliers have the resources to support customers struggling with debt by setting up payment plans, writing off unmanageable debt on a case-by-case basis and orking out affordable repayment holidays
Other sectors already commonly make provisions within their prices for bad debt costs. However, the regulated nature of the energy sector means that Ofgem is able to use the price cap mechanism to ensure these costs are recovered as fairly and efficiently as possible.
Tim Jarvis, Director General for Markets, said “We know that cost of living pressure is hitting people hard and this is evident in the increase in energy debt reaching record levels. We have taken steps to ensure energy firms are taking better care of customers and treating people struggling with debt fairly, through our robust consumer standards, and that companies are getting in touch to offer support, such as affordable payment plans, where needed.”
“However, the record level of debt in the system means we must take action to make sure suppliers can recover their reasonable costs, so the market remains resilient, and suppliers are offering consumers support in managing their debts.”
“The proposals set out today are not something we take lightly. However, we feel that they are necessary to address this issue. This approach will ensure the costs are recovered fairly, without penalising a particular group of customers.”
Commenting on the announcement, Matt Copeland, Head of Policy and Public Affairs at fuel poverty charity National Energy Action said “Energy bills continue to spiral and now the amount householders owe has reached record levels – almost £3 billion. Sadly, this is no surprise, with the Chancellor failing to protect low-income households from high energy bills in his Autumn Statement. Ofgem’s response, to increase prices further, may well be necessary. But it will only serve to increase debts and does not address the underlying issues.”
“There is now a desperate need for the UK Government to step in and to help low- income households clear their debts and make sure bills are affordable. People are already going without energy, heat and light and it’s not enough to stop their debt rising. It’s going to be a bleak and cold Christmas for millions.”