Utility Week

18 | AUGUST 2022 | UTILITY WEEK Customers Analysis Who will pay for creditcrackdown? As Ofgem presses ahead with plans to protect customer money from unsustainable business practices, there is disagreement about who will ultimately foot the bill, consumers or shareholders. I n June Ofgem announced that it was pushing ahead with plans requiring energy suppliers to ring-fence customer credit balances and Renewables Obligation (RO) payments. A series of consultations give an outline of the regulator's aim to crack down on com- panies using customer money as what it calls "free, and risk-free, working capital", which has encouraged those with insu cient capi- tal and poor business models to "enter the market and grow unsustainably". Energy UK deputy director Dhara Vyas tells Utility Week the package is "really wel- come" and adds that industry and consumer groups have been calling for stronger meas- ures for a very long time, particularly for new suppliers entering the retail market. She says: "The measures should make sure the people running these companies have the right expertise and that the compa- nies themselves have the ‰ nancial resilience to withstand volatility, because Ofgem didn't do that. "Ofgem focused on [creating] a market with dozens of suppliers, which gave people choice, because switching was the way that you exercised choice in this market and also how we measured engagement. That's where their eye was, on choice and the number of companies, and I think that was the wrong place to be looking." Industry divided Within hours of the consultation being published, a clear divide between legacy retailers such as Centrica and newer market entrants like Octopus had become apparent, with the latter's chief executive slamming the plans for ring-fencing as "‰ nancially illit- erate" and "ill-considered". He argued that it would increase costs for consumers. Centrica chief executive Chris O'Shea, however, welcomed the proposals and said: "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." Similarly, Eon Energy chief executive Michael Lewis has expressed his approval, saying: "If the chaos in the energy industry over past years has taught us anything, it's that suppliers should not be allowed to gam- ble with customers' money. "It's clear this issue needs an industry- wide solution to protect all customers while also preserving fair competition in the mar- ket, so we support Ofgem's proposals to ring- fence customer credit balances." Senior Investec analyst Martin Young says that taken together, the proposals align with Investec's view that the ongoing changes, whether enacted or proposed, are "support- ive of well-capitalised, well-run suppliers, and a positive for Centrica". He tells Utility Week that in the past, com- panies pricing their tari— s at unsustainable levels meant customers would leave sup- pliers like British Gas in search of cheaper deals, knowing they would be protected by regulatory mechanisms should their new supplier fail. "So then somebody like Centrica has to think 'hang on a minute, my customers are walking, what do I do?' Then they potentially have to respond and if they respond through price then that's impacting the margins that they can make. "We need that competitive market but we need a competitive market that is full of sus- tainable and innovative participants and not people who are running unsustainable busi- ness models."

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