There are no rules preventing businesses from using customer money to run their business. In November, Ofgem said it believed that “allowing suppliers to use part of their customers’ credit balances for innovation, operating cash and hedging, but not for riskier expenditure, such as financing unsustainable growth, is the right balance”.
However, the Oxera report – which looked at the extent to which Ofgem regulates the energy market – found that many energy companies that have collapsed since last summer relied on customer credit balances to fuel growth.
Several, including Avro and Utility Point, were so dependent on the money customers paid upfront that it sometimes represented more than 80% of the companies’ total assets.
Ofgem has now said companies must sound the alarm if customers’ credit balances represent more than half of their total assets – the point at which they are considered overburdened.
None of the companies whose credit balances are disclosed in this article exceeded this threshold.
The credit that UK households accumulate with energy companies is protected if the companies fail, but the cost of these failures adds to the energy bills of all UK households.
The collapse of 28 businesses is expected to have added £2.7billion to UK energy bills, the equivalent of £94 per customer. It also cost the taxpayer £6.5billion to bail out Bulb.
A spokesman for Ofgem said it had consulted widely on its reforms, which strike “the balance between improving the resilience of the retail energy sector, reducing costs for customers and ‘encouraging innovation as we transition to cheaper local energy’.
He added: “Much of the commentary and analysis concluded that a complete separation of credit balances would remove much of the working capital that would keep prices low for customers. Customers can always request a refund of their credit balance from their supplier at any time. »
Octopus and Ovo said customers owed them more money than they owed customers, and creditors could withdraw their funds at any time.
An EDF spokesman said the company had not “used credit balances to fund the growth of our business” and that the regulator had recently concluded there were “no significant issues” in the how it handles direct debit calculations for its customers”.
Energy companies ‘have full control and earn interest on my money’
When Stacey Dickens saw that her energy direct debit had risen to £500 a month, her first reaction was panic.
Although it is winter, the business manager still hasn’t turned on the central heating and uses hot water bottles and a fire to keep warm.
Her house in Skipton, North Yorkshire, is old and draughty, so throughout the autumn she took steps to reduce her consumption – or so she thought, until that she sees money taken from her bank account at the end of November.
But when she contacted her supplier EDF, the situation became more confused. Ms Dickens found she had over £2,300 in credit, almost the same amount as the current energy cap, which is believed to be the average annual bill. Why, then, had his monthly levy gone up from £300 a month to over £500?
The customer service agent replied that the prices had gone up and asked for a statement, which she could not provide as she was calling from her parents’ house.
She told them that increasing the bill didn’t make sense, given that she actually had several months of usage on her account. But the company didn’t change its mind, telling her instead that she should get a smart meter, which further heightened her frustration.
“They have all these recorded messages to turn off the lights, close the doors, take a shorter shower,” she told the Telegraph.
“I do all of this, but it doesn’t make any difference because they’re not basing the bill on how much I use, but on a ridiculously wrong forecast. I asked them to return the credit, but they weren’t receptive at all,” said the 41-year-old.
After being contacted by The Telegraph, the company apologized and reduced its payments to £200 a month.
A spokesperson said: ‘We are sorry that estimated meter readings were used instead of Ms Dickens’ actual meter readings, which resulted in a further increase in direct debit. We have now corrected this and have contacted Mrs Dickens to say sorry and to arrange her monthly payments at the correct amount.