OFGEM Safety Net

Sterlingtimes

It is difficult finding a clear answer on this scenario:

A consumer is concerned about the behaviour of his/her energy supplier, and decides that it is in his/her interests to switch as soon a possible. The consumer goes on to switch and the switch is satisfactory concluded but he/she is in credit with the old supplier with the old supplier owing the consumer many hundreds of pounds. Only now does the old energy supplier go bust. The consumer worries that he/she will now be an unsecured creditor and will lose his/her money.

Does OFGEM provide a safety net in such circumstances?

wavelets

Sterlingtimes wrote: »

It is difficult finding a clear answer on this scenario:

A consumer is concerned about the behaviour of his/her energy supplier, and decides that it is in his/her interests to switch as soon a possible. The consumer goes on to switch and the switch is satisfactory concluded but he/she is in credit with the old supplier with the old supplier owing the consumer many hundreds of pounds. Only now does the old energy supplier go bust. The consumer worries that he/she will now be an unsecured creditor and will lose his/her money.

Does OFGEM provide a safety net in such circumstances?

Where Ofgem appoints a new supplier to take over a supplier that ceases to trade, the new supplier will be responsible for refunding any accounts that the old supplier has left open i.e. they still have a balance owing.

This was demonstrated in the recent case of Iresa.

I’ve left Iresa, but have a credit balance. Will Octopus Energy pay me this money?

Octopus Energy will honour outstanding credit balances for both current and past customers of Iresa who are still owed money.


Octopus Energy will review details of any debt or credit on your account. Wait for them to contact you with relevant instructions. They will also be able to answer any questions you may have on credit on your account. The review process may take a few weeks as Octopus Energy need to get and review your records from Iresa. When calculating your credit balance, Octopus Energy will deduct any unbilled charges for your supply by Iresa. These are calculated by Iresa’s administrators.

https://www.ofgem.gov.uk/publications-and-updates/iresa-customers-your-questions-new-supplier-octopus-energy

The financial liability does not fall entirely with the newly appinted supplier, as there is a fund set up that all suppliers pay into to fund such an unfortunate event ... but that is detail that most consumers won't care about.

The bottom line is that consumers will not lose out.
(The exception is any money awared by say the ombudsman as compensation/goodwill - that falls on the original company, or their administrartors, to deal with)


However, best advice is to give your energy supplier regular meter readings so that you receive accurate bills/statements, and therefore ensure you don't pay your supplier "many hundreds of pounds" for energy you have not used.

https://www.moneysavingexpert.com/utilities/lower-energy-direct-debits/

Sterlingtimes

wavelets wrote: »

The bottom line is that consumers will not lose out.

https://www.moneysavingexpert.com/utilities/lower-energy-direct-debits/

Thank you, wavelets, that is exactly the authoritative help that I needed.

I do wonder why the suppliers are not required to hold credit balances on trust. I am worried by the circumstance where a supplier contrives to collect far larger amounts by direct debit than are required to meet anticipated billing. It leaves me with a suspicion that such suppliers are using clients' money to fund adverse cash flows.

wavelets

Sterlingtimes wrote: »

...
I do wonder why the suppliers are not required to hold credit balances on trust....

It would be expensive to 'ring fence' credit balances, not only practically but to effectively manage and control that.

Banks are expected nowadays to 'ring fence' consumers funds, but that is all their funds not just a fraction. Even that was expensive but obviously worthwhile based on the losses that would otherwise have occured if the governement had stepped in.

Presumably it was decided that all suppliers paying into a 'support' fund was deemed the most cost effective solution to protecting consumers funds.
(Not to mention any funds the newly appointed supplier chips in as a result of getting thousands of new customers for FREE - some suppliers are willing to pay at least £100 for a single new customer)

System

wavelets wrote: »

Presumably it was decided that all suppliers paying into a 'support' fund was deemed the most cost effective solution to protecting consumers funds.

Suppliers or customers? How is it fair that an OAP on BG’s SVT ends up paying into a fund that ‘bails out’ consumers that choose a cheap supplier that doesn’t have the business experience or the backers to stay in business? In my view, this is an Ofgem fudge. It would make more sense for suppliers to hold an insurance-backed credit bond. Insurers would then do the business due diligence that Ofgem has, to date, failed to do.

Alternatively, why should credit balances be protected? Perhaps those of us who want the cheapest prices should be forced to take the supplier default risk. If my broadband supplier goes to the wall, it is my problem.

Discuss.

wavelets

Hengus wrote: »

Suppliers or customers? How is it fair that an OAP on BG’s SVT ends up paying into a fund that ‘bails out’ consumers that choose a cheap supplier that doesn’t have the business experience or the backers to stay in business? In my view, this is an Ofgem fudge. It would make more sense for suppliers to hold an insurance-backed credit bond. Insurers would then do the business due diligence that Ofgem has, to date, failed to do.

Alternatively, why should credit balances be protected? Perhaps those of us who want the cheapest prices should be forced to take the supplier default risk. If my broadband supplier goes to the wall, it is my problem.

Discuss.

Suppliers pay into the fund, not consumers.

It's a type of insurance...
(only has no profit making insurance company running it)

Why should balances be protected? Possibly because the governemnet bailed out the banks who owed people much more than anyone should ever credit an energy supplier ... and hence were arguable better placed to fund their own losses, especially when they were often using those bank accounts for their own financial gains.

There is no reason anyone should be on a supplier's expensive SVT, no matter what their age.
If you know anyone that is, please encourage them to read this article, and follow it
https://www.moneysavingexpert.com/utilities/you-switch-gas-electricity/

PennineAcute

Let's turn it around. I would be asking why someone, irrelevant of age, is on BG's SVT. It is not impossible to change tariffs over the phone, even if they wanted to stay with BG.

Why should someone be able to bank with bank A and get a better rate than someone who banks with bank B? To my understanding, all banks contribute to the fund which pays out £85K, in the event of a bank going bankrupt.

You make it sound like EON, BG and the like could never go bust. Only a brave person would say that.

Sterlingtimes

Hengus wrote: »

Alternatively, why should credit balances be protected? Perhaps those of us who want the cheapest prices should be forced to take the supplier default risk. If my broadband supplier goes to the wall, it is my problem.
Discuss.

Rightly or wrongly, the Government has stepped-in to create a regulated market whereby energy suppliers are licensed. The Government has chosen to perform the due diligence on the consumer's behalf. The Government has access to more information than the consumer. Therefore the consumer can quite reasonably choose the cheapest source of supply.

It is somewhat difficult for the consumer to detect a miscreant supplier until matters take an averse turn. In fact, OFGEM is unwilling to talk directly to the consumer and guards its information carefully.

The Ombudsman will not step in until the consumer has exhausted the complaints' process. So the consumer has no redress for a supplier who is behaving outside the terms of it licence until eight weeks after a bad deed has taken place.

I can see no blame should attach to the consumer in such circumstances and the consumer should be safeguarded appropriately.

System

Sterlingtimes wrote: »

Rightly or wrongly, the Government has stepped-in to create a regulated market whereby energy suppliers are licensed. The Government has chosen to perform the due diligence on the consumer's behalf. The Government has access to more information than the consumer. Therefore the consumer can quite reasonably choose the cheapest source of supply.

It is somewhat difficult for the consumer to detect a miscreant supplier until matters take an averse turn. In fact, OFGEM is unwilling to talk directly to the consumer and guards its information carefully.

The Ombudsman will not step in until the consumer has exhausted the complaints' process. So the consumer has no redress for a supplier who is behaving outside the terms of it licence until eight weeks after a bad deed has taken place.

I can see no blame should attach to the consumer in such circumstances and the consumer should be safeguarded appropriately.

Sadly, Ofgem DOES NOT carry out any supplier due diligence. It has said as much in responses to me; for example, quote the granting of a Supply Licence does not mean that the business owners are fit and proper persons unquote. To date, it has been nothing more than a £400 paper check. Ofgem has consistently been criticised by Citizens Advice for its licence approvals process. Ofgem is now consulting on how this can be improved.

As far as the Consumer Levy is concerned, it is true that suppliers do pay but who pays the suppliers? It is was estimated in one industry journal that the consumers had already had to pay £10 towards supplier failures under the Consumer Levy. The Coop, if I recall, was paid c.£14M to cover the cost of the failure of GBEnergy.

The logic of blame is an interesting one. Are customers to blame when they choose a cheap holiday with no bonded protection and the Company goes into liquidation? The answer has to be ‘yes: it was down to personal choice. Why should energy be treated differently, and why should all suppliers/consumers pay for the poor choices of others?

Sterlingtimes

Hengus wrote: »

The logic of blame is an interesting one. Are customers to blame when they choose a cheap holiday with no bonded protection and the Company goes into liquidation? The answer has to be ‘yes: it was down to personal choice.

So far, I am in agreement. Commercial companies trading on a business to business basis make the same choices. Should a company buy goods and services only from the biggest name in the industry, or should it buy more innovative and possibly cheaper goods and services from a small lesser know company? The commercial buyer may like the smaller company's offering but will insist upon a parent company guarantee, a performance bond and/or a prepayment bond. An assured purchase if very different from an uninsured purchase.

Hengus wrote: »

Why should energy be treated differently, and why should all suppliers/consumers pay for the poor choices of others?

Consumers are often given more protection under the law than commercial buyers. Rightly or wrongly, the regulator has stepped (supposedly to increase price competition) and has to a degree insured purchases. In this setting, the supplier/consumer will pay for the poor choises of others. If this were not the case then it would be a matter of caveat emptor.

antrobus

wavelets wrote: »

..
Banks are expected nowadays to 'ring fence' consumers funds, but that is all their funds not just a fraction....

Err, no. You have misunderstood what ring fencing means.

From 1 January 2019, the largest UK banks must separate core retail banking from investment banking. This is known as ring-fencing
https://www.gov.uk/government/publications/ring-fencing-information/ring-fencing-information

Within any retail bank, consumers funds are used to fund lending. They are not placed in some 'special' risk free pot.