Ofgem to announce measures to protect energy customers’ money | Energy industry

New measures to better protect customers’ money and prevent energy providers from using some of their money “like an interest-free company credit card” are to be announced by the industry regulator on Monday.

Ofgem said its ‘tough’ package of measures aimed to reduce the risk of bankruptcy for more energy suppliers and would also include changes aimed at preventing companies from increasing direct debit payments from customers more than necessary.

The reshuffle aims to ensure providers “can weather the ongoing storm” and prevent a repeat of last year’s failures “which are causing unfair and unnecessary costs and worries for consumers”.

More than 30 energy suppliers have gone bankrupt since the start of last year as a sharp rise in wholesale energy costs led to widespread losses.

In April, Ofgem’s energy price cap rose by 54% – or nearly £700 – to £1,971 a year, and last month the regulator said it was to rise again , £800 or more, reaching around £2,800 in October. This, in turn, should help lift inflation above 11% later this year.

Ofgem said the measures were designed to improve the financial health of suppliers so they can withstand any future shocks, particularly over the autumn and winter. He added that if some still failed, customer credit balances and green levy payments would now be protected.

“Currently they are being used by some providers as an interest-free corporate credit card,” said Jonathan Brearley, chief executive of Ofgem. “Going forward, all vendors will need to have sufficient working capital to operate, without jeopardizing their customers’ credit balances.”

When a supplier goes bankrupt, customers are transferred to a new energy supplier with their credit balances intact. However, under the existing rules, the new supplier does not receive credit balances from the defaulting supplier’s customers, so the cost of replacing them is spread across all consumer bills.

The regulator has proposed rules that would require providers to place customer funds in a separate account, ensuring that any overpaid credit would be preserved in the event of a meltdown.

Last month, the government said some providers had increased direct debit payments more than necessary.

Ofgem said its proposed changes also included tougher rules on the level of direct debits suppliers can charge customers, “to ensure that credit balances do not become excessive”.