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Plans for energy customers to foot bill if supplier goes bust

Written by: Paloma Kubiak
The energy watchdog Ofgem has proposed adding a levy to customer bills so they can get their money back should a supplier go out of business.

More than 40 suppliers provide gas and electricity and while supplier insolvency is rare, Ofgem said the measures would protect customers’ money should a provider go bust.

Currently, if a supplier becomes insolvent, another company is nominated to continue providing a customer with energy.

However, if you pay your energy bill via direct debit to spread the cost throughout the year, it’s possible that you’ll be in debit during winter while building up credit in the summer.

In the event of insolvency, there may be “financial implications for the failed supplier’s customers” as Ofgem said they’d be treated as ‘unsecured creditors’, meaning that without regulatory invention, they are unlikely to receive all, or possibly any of their money back.

It added that it wouldn’t be unusual for a customer to be over £100 in credit with a supplier.

In a bid to better protect customers’ money, Ofgem is proposing for the “costs of reimbursing the credit balances to be spread across all energy customers.”

It said this would “have a small impact on bills.”

Ofgem’s senior partner for consumers and competition, Rachel Fletcher said: “We are proposing a safety net to protect customers’ credit balances in the unlikely event of a supplier failure.

“There are big savings to be made from switching of around £200-£300 and now over 40 suppliers to choose from. These protections are designed to give people peace of mind so they can have complete confidence to shop around for the best deal.”

There are similar compensation schemes in the savings, investment and travel industry under the Financial Services Compensation Scheme (FSCS) and ABTA financial protection scheme. The FSCS is funded by by a levy on authorised financial services firms, while ABTA members fund its scheme.

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