Ofgem has proposed measures to better protect customer credit balances and is looking to strengthen direct debit payment rules to help prevent excessive credit balance build up.

It also wants to see that firms have sufficient capital to withstand future energy market shocks and that they have control over key assets needed to run a supply business.

The proposals come as since September 2021, 28 energy firms have gone bust, with over two million customers being moved to a new supplier.

But this has come at a cost of £94 per household. Under current rules, the new supplier doesn’t gain the customer credit balance from the failed supplier, so the cost of replacing these balances are currently shared across consumer bills.

A similar arrangement is in place for money paid through customer bills to the Renewables Obligation, the government’s green levy scheme.

The plans announced today would mean energy retailers are required to ring-fence customer money so that it isn’t lost if they go out of business. It would also mean customers would not foot the bill amid soaring energy prices and the cost-of-living crisis.

‘Interest free company credit card’

Jonathan Brearley, CEO of Ofgem, said: “Today’s plans are another step in making sure the complex energy market is fair, resilient and works for everyone.

“The energy market remains incredibly volatile and there are a number of huge geopolitical issues continuing to apply massive pressure. Ofgem is working hard to ensure energy suppliers shore up their positions so they can weather the ongoing storm.

“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.

“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. Moving forward, all suppliers will have to have enough working capital to run, without putting their customers’ credit balances at risk. Today’s proposals will make sure that customers’ hard-earned money is properly protected so that a company must foot the bill if it fails, rather than consumers picking up the tab.”