Octopus Energy boss Greg Jackson has slammed Ofgem’s plans to force suppliers to ring-fence customers’ credit balances as “ill-considered” and “financially illiterate”.
In a major announcement on Monday morning (20 June), the energy regulator issued a series of consultations aimed at bolstering the retail market’s financial resilience.
Key proposals include obligating suppliers to protect their customers’ credit balances and Renewables Obligation (RO) payments so that they are available to the customers’ new supplier should they fail as well as initial thoughts on how a failed supplier’s hedges could also be passed on.
Ofgem said some companies have been “overly reliant” on such funds for working capital and its proposals will discourage suppliers from taking “excessive risk” and pursuing “risky business models”.
Responding to the announcement, Octopus argued that ring-fencing credit balances is an “inadequate measure” to tackle the causes and costs of supplier failure.
Jackson said: “It’d be bonkers to raise customer prices and increase supplier profits when much cheaper alternatives would be at least as effective in protecting customers’ money.
“Crude ring-fencing is financially illiterate, which is why it’s not used in other industries. Its proponents need to be honest that it would cost customers a lot more than it saves, and would actually drive up supplier profits.
“The regulator should resist pressure from companies to adopt ill-considered ideas which would make the crisis worse for customers and more profitable for suppliers.”
Octopus calculated that the measure will add “up to £30 to customer bills every year” and would therefore increase supplier profits. The company said there are “much more stringent measures” available.
“An ATOL-style insurance for customer balances, strict controls on hedging and management requirements would cost customers 5-10 times less than ring-fencing and wouldn’t add to supplier profits,” Jackson added.
Ofgem’s proposals have been welcomed elsewhere in the sector, however.
In his response, Centrica boss Chris O’Shea welcomed the consultation and said customers “would be appalled” to learn their money was being used to fund day-to-day business activities. However, he added, Centrica is worried at the length of time it is taking to make the changes.
He continued: “While some energy companies argue that prices will increase if they have to ring-fence customer deposits, they won’t. Energy companies must be adequately capitalised by their shareholders so that if they fail, the shareholders feel the pain, not the hard pressed UK consumer – it really is as simple as that.”