OFGEM Announcement - Is That Even Legal?

dave22

So Ofgem have announced a rise in the energy price cap in order to recoup debt accrued from those customers who don't pay their bills.

I had to do a double take on this: Ofgem is giving the green light to charge good customers more money - for energy they haven't used - in order to pay for those who don't settle their bills. Here's a screencap from the press:

'Energy bills to rise by an extra £16 next year to cover unpaid customer debt.

Ofgem wants to put the price cap up in April 2024 to cover what it calls 'bad debt' - meaning unpaid customer energy bills.

The regulator said consumers currently owe energy firms a record high of £3billion.

Ofgem said this is 'unlikely to be repaid' and added that 'it is crucial that the regulator ensures that the burden of this increased debt falls as fairly as possible'.

The energy regulator said power companies also needed to charge extra to pay for the costs of meeting its new rules on customer service, brought in earlier this week.'

Wow! Is this even legal? To forcibly take money off people for a product they never had? Surely it's the companies duty to recover debt from those bad debtors. It sounds like Ofgem are giving people the green light to not pay their energy bills because 'don't worry, somebody else will pick up the tab'.

MattMattMattUK

dave22 said:

So Ofgem have announced a rise in the energy price cap in order to recoup debt accrued from those customers who don't pay their bills.

I had to do a double take on this: Ofgem is giving the green light to charge good customers more money - for energy they haven't used - in order to pay for those who don't settle their bills. 

They are not charging people for energy they have never had, they are levying a charge to ensure the network is maintained and functioning, likely via the standing charge.

dave22 said:

Here's a screencap from the press:

'Energy bills to rise by an extra £16 next year to cover unpaid customer debt.

Ofgem wants to put the price cap up in April 2024 to cover what it calls 'bad debt' - meaning unpaid customer energy bills.

The regulator said consumers currently owe energy firms a record high of £3billion.

Ofgem said this is 'unlikely to be repaid' and added that 'it is crucial that the regulator ensures that the burden of this increased debt falls as fairly as possible'.

The energy regulator said power companies also needed to charge extra to pay for the costs of meeting its new rules on customer service, brought in earlier this week.'

Wow! Is this even legal? 

Yes, it is legal.

dave22 said:

To forcibly take money off people for a product they never had?

That is not what they are doing, but nice hyperbole.

dave22 said:

Surely it's the companies duty to recover debt from those bad debtors.

The energy suppliers are not allowed to take meaningful recovery action against people for energy bills, worse still they must keep supplying energy to non-payers, further increasing debts.

dave22 said:

It sounds like Ofgem are giving people the green light to not pay their energy bills because 'don't worry, somebody else will pick up the tab'.

Some people have taken this view. If you think that would be a beneficial course of action for you then go ahead, but you may find it has other consequences. 

Hoenir

dave22 said:

Surely it's the companies duty to recover debt from those bad debtors. 

Any business is the same. Bad debt is unrecoverable. Written off. Good customers have always paid for those that don't pay up. 

These days many people want a free lunch. Stuff anybody else. 

mmmmikey

The chickens are coming home to roost. Restricting energy suppliers ability to use pre-payment meters to recover bad debts has the direct consequence of putting up bills for those that do pay. Another example of why media fuelled populist politics is not always a good thing.

JSHarris

Similar discussion in this thread:  https://forums.moneysavingexpert.com/discussion/6493405/the-great-offgem-ripoff#latest

MultiFuelBurner

It is the consequence of giving the energy companies such measly profit margins of under 2%. 

If this were a normal business landscape they could set their own profit margins and bad debt would be a part of that and they could then sell it on for pennies in the pound. Not forgetting we would have been paying more.

To stop big energy suppliers leaving the market or going bust we all have to take this on the chin.

Blame whoever it was campaigning for the stop of forcible pre pay meters when customers get into debt....who was that again?

JSHarris

I think the malaise runs deeper than that.  The way the provision of these services essential to life are split and divided up amongst so many different companies, with multiple layers of cost-increasing legislation, fiddling and tweaking by government, is guaranteed to increase costs.  Each slice of the pie has to make a profit or take a cut via taxes, so all the multilayered business model does is reduce value.

We have some absolutely crazily complex systems created by the way the energy market, or any utility market come to that, has evolved.  Take electricity coming to your home.  It starts with companies supplying fuel and selling it to individual generators, often through intermediaries.  Those generators then sell their electricity, partly by auction, via the grid.  Suppliers then buy wholesale electricity to supply to consumers, where it passes through two networks, the grid and then the individual DNOs (each taking a slice).  When it gets to your house it's still not straightforward.  Your DNO owns the cable coming in and fuse, a meter admin company usually owns the meter (and sells services to your supplier, unless the supplier handles meter admin themselves).  The last stage is the bit of wiring owned by the consumer.

No one in their right mind would have set out to design such a complicated, multilayered, system, especially as every layer just adds cost to the end user.  It's quite possible for there to have been half a dozen or more companies involved in getting electricity from fuel to your home, especially when market speculators are added to the mix.

Andreg

We are supposed to have a competitive energy market, where the price cap is only required to protect a few people who do not have the time or inclination to shop around.  The real question is why has the competition been knocked out of the market?

QrizB

Andreg said:

The real question is why has the competition been knocked out of the market?

Most of the really cheap suppliers were relying on the energy spot market being cheaper than the forward-priced market. They discovered the folly of this approach when the energy crunch kicked off and spot prices soared.

We're back to a situation where the spot market is somewhat cheaper than the forward market, which is why those of us on Octopus Tracker are so happy with the tariff. But you're unlikely to see the likes of Avro or Neon Reef again any time soon.

EssexHebridean

Andreg said:

We are supposed to have a competitive energy market, where the price cap is only required to protect a few people who do not have the time or inclination to shop around.  The real question is why has the competition been knocked out of the market?

Unprecedented increases in wholesale prices due to circumstances which were not entirely possible to foresee, coupled with a lot of Johny-Come-Lately companies who came into the market in the expectation of being able to make a quick buck, and who failed to take the correct steps to ensure that when those prices escalated, they were unable to continue to provide the service people had signed up for at the prices they had agreed. If you are going to promise X-hundred-thousand folk energy at knockdown prices, you'd best make sure you have enough of it at those prices to go round... 

MeteredOut

MultiFuelBurner said:

It is the consequences of giving the energy companies such measly profit margins or under 2%. 

If this were a normal business landscape they could set their own profit margins and bad debt would be a part of that and they could then sell it on for pennies in the pound. Not forgetting we would have been paying more 

To stop big energy suppliers leaving the market or going bust we all have to take this on the chin.

Blame whoever it was campaigning for the stop of forcible pre pay meters when customers get into debt....who was that again?

Perhaps a though experiment more than anything else, but if these bad debts are (effectively, if not legally) passed onto the wider populace, should the suppliers still be allowed to sell them onto debt management companies, even for pennies in the pound? Or have the suppliers decided/been told to write them off?