The energy regulator Ofgem has set out proposals to help ensure customers at risk of getting into debt are better supported.
Under the plans, households would pay an extra £1.33 a month on energy bills paid between April 2024 and March 2025. The cash would be used to help suppliers recover almost £3bn in bad debts from customers struggling to pay bills.
Bad debt refers to the amount of money owed by customers in the energy system, which is unlikely to be repaid. Ofgem said it is crucial that the regulator ensures that the burden of this increased debt falls as fairly as possible.
Figures published by the regulator show that energy debt has reached almost £3bn – 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.
With that in mind, today’s consultation sets out proposals for a one-off price cap adjustment of £16 to ensure suppliers have sufficient funding to ensure they can meet the strict regulations Ofgem has in place around how they treat customers facing payment difficulties.
Ofgem said 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 working out affordable repayment holidays.
Cost of living hitting people hard
Tim Jarvis, Ofgem 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.
“The price cap has helped to protect consumers from a volatile gas market. However, it remains a blunt instrument in a changing energy sector, and the way it works may need to change in the future, so customers continue to be protected.”
Under today’s proposals, any extra costs would not be passed onto customers who use prepayment meters (PPMs) for their energy. This reflects the fact that many PPM customers do not build up the same level of debt as credit customers because they top up as they go.
Although today’s measures will go some way to helping with the issue of debt, Ofgem is also looking at alternative policy responses to the debt issues, beyond the price cap, and will seek views from stakeholders in 2024 on approaches for dealing with bad debt.
