Citizens Advice response to Ofgem’s Supplier Licensing Review: Credit balance protections
In recent years, supplier failures have affected nearly 2 million consumers and left behind costs of over £300 million. Ofgem have approved costs of over £60 million via the Last Resort Supplier Payment Claims levy, nearly £50 million of which have been approved to cover credit balance refunds. These costs are mutualised across all suppliers and are directly increasing the prices paid by consumers.
Citizens Advice have been calling for Ofgem and the Government to take action since 2013. We therefore welcome Ofgem’s proposals to address the costs mutualised as a result of large credit balances when suppliers fail and to mitigate the risk of high credit balances for consumers.
We broadly agree that the proposed changes can help reduce the cost of mutualisation and will require suppliers to pay a fair share towards any additional risk their activities create. The changes should also incentivise suppliers to run their business more responsibly and mean that suppliers are less likely to hold customer credit balances which are larger than necessary.
However, we think that the proposals must also be able to take account of consumer preferences. In particular, we think the auto-refund proposals could be amended to enable consumers to choose to keep some amount of credit balance at the end of the year to mitigate against future price or usage increases.
Ofgem should ensure that, in implementing these proposals, they account for other relevant legislation and regulations. For example, Ofgem should consider how they will monitor the credit balance protection proposals alongside the recently implemented Financial Responsibility Principle. It will be crucial for Ofgem to monitor the credit balance protection policies alongside existing regulations and to ensure there is swift enforcement action for suppliers who are not complying, in order to minimize consumer detriment and reduce mutualised costs when suppliers fail.
Finally, in 2019 we estimated that Renewables Obligations (RO) costs mutualised across consumers are about twice as high as those incurred by the Last Resort Supplier Payments. We called for reduced costs of mutualisation, including via legislative changes to require the bills for the Renewables Obligation to be paid more frequently. We continue to call for action in this area to achieve the aims of the supplier licensing review.