Energy suppliers row over how to protect customers’ overpaid credit

theguardian.com:

The owner of British Gas has hit back at rival Octopus Energy in a row over how best to protect households’ overpaid credit in the fallout from a string of supplier failures.

Centrica’s chief executive, Chris O’Shea, said its competitor’s proposed solution to protect consumers with an insurance scheme would allow companies to “operate risky business models and dip into customers’ deposits as a free overdraft facility”.

It suggests customer funds should be ringfenced in a separate account, but Octopus has claimed that option would cost consumers up to £30 extra a year, arguing “crude ringfencing is financially illiterate”.

Nearly 30 energy suppliers have collapsed over the past year as a rise in wholesale costs, combined with the industry price cap, squeezed companies out of business.

Customers typically overpay for their energy use in the summer months and then that credit is used over the winter, to keep direct debits consistent throughout the year.

Administrators were unable to recover hundreds of millions of pounds in deposits after suppliers went bust last year, which has in turn pushed up standing charges for customers to compensate for the lost funds. Citizens Advice estimated the failures would cost each household £164 a year through bills.

The collapse of Bulb, which has been put into government-run administration, could also cost taxpayers £3bn. Attempts to auction off Bulb have drawn just a single bid, from Octopus.

Ofgem, the energy regulator, is now attempting to reform the market to prevent a repeat of those failures, but suppliers are split on how best to protect consumers from the cost of further collapses.

Ofgem has proposed rules that would require energy suppliers to place customer funds in a separate account,