British Gas owner says rivals blocking plans to protect customer deposits

Credit card buy

The British Gas owner, Centrica, has accused rivals of blocking plans to protect customer deposits in response to the collapse of scores of energy firms.

Centrica has accused two big suppliers – understood to be Ovo Energy and Octopus Energy – of resisting the proposals to ringfence deposits.

More than 30 energy suppliers have gone bust since the start of last year as a sharp rise in wholesale energy costs triggered widespread losses.

One of the biggest suppliers to collapse was Bulb. Octopus has made a last-minute entry into the three-way race to buy the supplier, which is in a special government-run administration, the Financial Times reported on Friday. Centrica and the Abu Dhabi energy firm Masdar are also reportedly part of a bidding war. The government has set a deadline of 30 June for bids.

Rising cost of living a worry for 77% of adults in Great Britain, says ONSRead more

Administrators were unable to recover £400m of customer deposits after suppliers went bust in 2021, which has pushed up standing charges for consumers to compensate for the lost funds.

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.

The energy regulator, Ofgem, has proposed rules that would require energy suppliers to place customer funds in a separate account, ensuring any overpaid credit would be preserved in the event of a collapse. It has consulted on the issue and is expected to publish an update in the coming weeks.

  When will my Shell Energy smart meter become smart again?

However, Centrica is concerned that the proposals may not be adopted quickly or in full. In a letter to the industry body Energy UK, seen by the Guardian, the Centrica group general counsel, Raj Roy, said he was disappointed with EUK’s “lukewarm” response to the proposals.

Roy said: “The justifications and motivations for the positions being advanced by two major suppliers, in particular, objecting to Ofgem’s proposals are, on any analysis, simply not credible and not compatible with a sector that must act in the interests of consumers.

Help credit report

“The inescapable and adverse inference that we draw from the stance of these suppliers is that they are using customer credit balances to fund their wider commercial operations.”

Since 2019, the largest UK banks have been required to separate their core retail banking divisions from their investment banking arms in an effort to protect consumers. Advocates of similar plans in the energy industry hope consumers would be better protected if more suppliers were to fail.

British Gas has £300m of customer deposits ringfenced in a separate account. Centrica declined to name the two suppliers but industry sources said Ovo and Octopus had objected to the proposals.

In evidence to the business, energy and industrial strategy committee last month, the former Ofgem chief executive Dermot Nolan said the regulator had asked Ovo to stop using customer credit balances as working capital in “about 2015, 2016”.

Separately, Centrica this week applied to reopen the UK’s largest natural gas storage site, Rough, five years after it was closed for “economic” reasons. Before its closure the site, which is 18 miles of the east cost of Yorkshire, was responsible for 70% of the UK’s natural gas storage. The company is in discussions with the government over options for the site.

  Shoppers shocked as supermarkets’ online prices jump after ordering

Sign up to the daily Business Today email or follow Guardian Business on Twitter at @BusinessDesk

The application to the North Sea Transition Authority comes amid a heightened focus on domestic oil and gas supplies since Russia’s invasion of Ukraine. The industry has also been hit by a windfall tax, which Centrica said this week could hit investment in the sector.

An Octopus spokesperson: said: “Centrica’s proposals would do almost nothing to address the cause of failure of energy companies … Octopus instead proposes strict rules on the real cause of failure – poor management and insufficient hedging. We’d also support an FSCS-like scheme for credit balances, which would cost around 10 times less than Centrica’s proposals – and wouldn’t add to supplier profits.

“Given that customers are in debt to Octopus nine months of the year, Centrica’s assertion that companies are using credit balances to fund wider operations is categorically wrong. Indeed, Octopus has raised over £1bn of investment from some of the world’s leading funds and energy companies, which we’ve used to build technology that reduces costs and bills.”

An Energy UK spokesperson said: “Energy UK represents a wide range of businesses like any trade body. As our response to Ofgem says, we support tighter protections of customers credit balances from misuse. Energy UK members have differing views on implementation which is why we encouraged them to write separately to Ofgem.”

Centrica and Ovo declined to comment.

Leave a Reply