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UK energy regulator drops plan to ring fence customers’ cash
Global Banking & Finance Review®
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LONDON (Reuters) -British energy regulator Ofgem on Friday dropped a planned requirement for suppliers to ring fence customer credit balances, allowing them to continue investing the capital as it seeks to find ways to protect the industry from market shocks.
LONDON (Reuters) -British energy regulator Ofgem on Friday dropped a planned requirement for suppliers to ring fence customer credit balances, allowing them to continue investing the capital as it seeks to find ways to protect the industry from market shocks.
The watchdog is still proposing a requirement for suppliers to hold capital reserves and will seek feedback on the plans it hopes to publish in spring 2023, it said.
But it said on Friday it was not proceeding with its plan to make suppliers ring fence customers’ credit balances, and would instead monitor the use of such funds.
The money suppliers needed to buy renewable energy would be ring fenced under the proposals, Ofgem said.
Ofgem’s chief executive, Jonathan Brearley, said the energy crisis, caused by soaring wholesale gas prices this year, had profoundly impacted the sector and its business models.
“These proposals will provide protections, checks and balances for consumers, suppliers and the entire sector to create a more stable market,” he said.
Ofgem wanted well capitalised businesses that can weather price fluctuations, he said, but it did not want to block new suppliers or “force suppliers to sit on lots of capital they could be investing in innovative ideas”.
Centrica, the owner of Britain’s largest energy supplier British Gas, said dropping the proposal for customers’ credit balances felt like an “abdication of responsibility by a regulator not focusing on the right things”.
“When customers pay up front for their energy, they are trusting their supplier to look after their hard-earned money,” chief executive Chris O’Shea said.
“They would be appalled to learn their money was being used to fund day to day business activities, but that’s exactly what’s happening in some companies, and it undermines confidence in the market.”
He added that “if and when a large supplier fails, the recklessness of the decision not to address this issue will be clear for all to see”.
(Reporting by Pushkala Aripaka in Bengaluru and Paul Sandle in London; Editing by Savio D’Souza and Elaine Hardcastle)
Ring fencing is a financial practice where a company separates certain assets or funds to protect them from being used for other purposes, ensuring that they are available for specific obligations, such as customer credit balances.
Capital reserves are funds that a company sets aside to cover potential future expenses or losses. These reserves help ensure financial stability and can be used to absorb shocks from market fluctuations.
Ofgem, the Office of Gas and Electricity Markets, is the regulator for the electricity and gas markets in Great Britain. It aims to protect consumers, promote competition, and ensure the energy supply is reliable and sustainable.
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