Energy sector reforms criticised by British Gas owner

A woman adjusts a radiator
A woman adjusts a radiator

Energy regulator Ofgem has announced plans to make the sector more resilient to market shocks, but has been heavily criticised by British Gas.

The watchdog has dropped a plan to ring-fence customers' credit balances - which build up when direct debits are higher than energy used.

Instead, Ofgem said it would "monitor closely" firms' use of these balances.

British Gas owner Centrica accused Ofgem of an "abdication of responsibility".

A raft of energy suppliers have collapsed since the start of last year after being unable to cope with soaring energy prices. The government is facing a bill of about £6.5bn for the collapse of supplier Bulb alone.

Ofgem is proposing a range of reforms including making sure companies have sufficient financial strength to deal with future energy shocks. It said it will also require suppliers to ring-fence money they need to buy renewable energy.

However, the regulator said it would not require ring-fencing of customers' credit balances.

Instead, it said it would just monitor companies' use of customers' credit balances more closely to stamp out misuse by firms. When a firm goes bust, this money is protected for customers but the cost is usually shared among the surviving suppliers.

This decision was criticised by Centrica chief executive Chris O'Shea.

"When customers pay up front for their energy, they are trusting their supplier to look after their hard-earned money," he said.

"They would be appalled to learn their money was being used to fund day-to-day business activities, but that's exactly what's happening in some companies, and it undermines confidence in the market."

He added that "if and when a large supplier fails, the recklessness of the decision not to address this issue will be clear for all to see".

The regulator said it was seeking responses from the industry and would publish the final reforms in the spring.

"These proposals will provide protections, checks and balances for consumers, suppliers and the entire sector to create a more stable market," said Ofgem chief executive Jonathan Brearley.

"We want suppliers to be able to be innovative and dynamic, while also making sure they are financially stable and that customers' money is protected."

A spokeswoman for Octopus Energy supported the regulator's plans.

"Ofgem have wisely adopted a similar approach to the way banks are regulated. We still need to see the details but it should help prevent fly-by-night energy companies setting up, reduce the cost of failure and keep bills down," she said.