UK energy watchdog accused by British Gas owner of ‘abdication of responsibility’

The UK’s energy watchdog OFGEM has been accused of abdicating its responsibility after it dropped plans to stop energy companies from spending the deposits paid by their customers.

Chris O’Shea, Chief Executive of Centrica, told the Telegraph on Saturday, November 26 that: “Energy companies must be adequately capitalised by their shareholders so that if they fail, the shareholders feel the pain, not UK consumers. 

“This feels like an abdication of responsibility by a regulator not focusing on the right things.”

The comments follow criticism of OFGEM on Friday when it announced that it was abandoning proposals that would require companies to ring fence customer credit balances.

O’Shea and others have said that OFGEM has not learned the lessons of the energy crisis which saw the government having to bail out suppliers, with the bill ultimately being picked up by taxpayers and energy users.

Currently there are no rules in place that dictate what energy companies can or can’t do with the credit balances they hold on customer’s accounts. Many of these businesses are already facing criticism for increasing customer’s monthly payment way in excess of their actual usage, resulting in millions of pounds worth of credit balances being held by these companies.

Many of the companies that folded in the last year, around 30, were found to be using these balances to fund their businesses. In the case of Avro that cost bill payers £680 million, money that is currently being recouped through current energy rates.

It is thought that the regulator backed out after pressure from the smaller suppliers who had argued the measure would benefit the larger more established firms and that would not be good for customers.

OFGEM said that it has decided to shelve the plan as the disadvantages outweighed the benefits, with the main concern being that such a scheme would result in increased prices.

Octopus, one of those who lobbied against the scheme, said that at any one time the supplier is owed more than it owes customers. That argument has led OFGEM to instead to introduce new measures that will require suppliers to hold a minimum amount of cash reserves, much as banks do.

That it believes will be sufficient to protect consumers against the collapse of any suppliers in the future with Octopus’ Greg Jackson saying: “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.”

The UK energy watchdog has been accused of failing in its oversight of suppliers, which resulted in the collapse of many during the early months of the energy crisis. Whether the measures now being introduced will be sufficient remains to be seen, although at least one company in the industry thinks not.

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