Energy giants’ £4.5bn customer credit cash: shocking reserve revealed as regulator axes plan to protect cash hoarded by direct debit
- Ofgem criticized for abandoning plans to ‘close’ customer balances
- The regulator had previously proposed a safeguard measure, but abandoned the idea
- When energy companies collapse, taxpayers end up with the bill so customers don’t lose
Britain’s energy firms are sitting on a £4.5bn hoard of customer credit, raising fears over the safety of cash should other firms fail, The Mail on Sunday can reveal.
The shocking figure – more than three times higher than in the spring of last year – comes just days after Ofgem was criticized for abandoning plans to ‘protect’ customer balances.
The regulator had previously proposed the safeguard measure, but in a shock announcement on Friday it revealed it had dropped the idea.
Shocking: UK energy firms are sitting on a £4.5billion hoard of customer credit, sparking fears over the safety of the money if other firms fail
When energy companies collapse, taxpayers have to foot the bill to make sure customers don’t lose. The biggest was Bulb with 1.5million customers – bailed out at a cost to the nation of £6.5billion.
The embattled regulator said it will now only closely monitor how companies use customer credit balances.
The decision follows concerns previously raised by Ofgem chief executive Jonathan Brearley that some companies are using consumer credit balances “like an interest-free credit card”.
The announcement last week sparked fury from the owner of British Gas Centrica, who accused the regulator of an “abdication of responsibility”.
Centrica chief executive Chris O’Shea pointed out that Ofgem’s failure to protect has cost households dearly after nearly 30 energy companies went bankrupt since last year.
The figure, based on research by comparison site Uswitch and the MoS, rose from £1.4bn last April.
Customer balances have grown rapidly thanks to increased direct debit payments demanded by businesses as energy costs soar. But households consumed less energy than usual due to unusually mild temperatures for the season.
Energy expert Mark Todd said the regulator must “urgently” protect deposits. He said: ‘The degree of taxpayer exposure is mind-boggling.
“There are so many risks in the market. Ofgem should be wary that companies are potentially on a knife edge.
Customers typically pay too much for their energy use during the summer, and then that credit is used during the winter.
Todd said companies that resist repository backup plans would do so “because they want to use it to support their business.”
Centrica rival Octopus welcomed Ofgem’s proposal. Chief executive Greg Jackson said in June that he was “financially illiterate” to protect deposits. On Friday, Octopus said the regulator had “judiciously adopted” an approach that “will reduce the cost of failure.”
Octopus previously said, “We can afford to protect our customers’ credit balances, but we prefer to keep prices lower.”
Brearley said: “I encourage all retailers to work with us to move the industry into a more vibrant and resilient position.”
In particular, the regulator has set a minimum amount of capital that suppliers must hold. It will also force them to set aside the money needed to purchase renewable energy.
Richard Neudegg, chief regulatory officer at Uswitch, said affected consumers could seek refunds or direct debt relief. However, he added: ‘Energy bills are still due to rise in April, so it may be beneficial to keep that money with your supplier.