Energy suppliers are being warned of excessive rises in energy bills, with regulator Ofgem saying it will impose fines and scrap licenses if it finds households are being ripped off. It comes as Britons prepare for their gas and electricity direct debits to rise after the first month of the new tariffs.
Ofgem says it is looking at what suppliers are demanding from customers following the huge 54% increase in the energy price cap, which came into effect on April 1. Energy bills will rise by £693 a year for 22 million households. On typical power consumption, this means the price cap will drop from £1,277 per year to £1,971 per year from April 1. £2,017.
However, Ofgem chief executive Jonathan Brearley wrote in a blog post: “We are also seeing troubling signs that some businesses are responding to these changes by allowing customer service levels to deteriorate. Ofgem is collecting and reviewing a range of action directly from suppliers, in addition to information from consumer groups, NGOs and members of the public, and this has highlighted a range of issues that we believe are of concern and are investigating further.
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“For example, concerns have been raised that some providers may have increased direct debit payments more than necessary, or directed customers to rates that may not be in their best interests. We have also seen troubling stories on how certain vulnerable customers are treated when they encounter difficulties.”
He added: “When households are faced with massive increases in their energy bills, it is especially important that suppliers are held accountable and bad practices are dealt with quickly. In particular, now more than ever, we need vendors to meet their license requirements. on how they work with clients in financial difficulty.
“The challenges facing our customers today should be a call to action for energy retailers to improve things, both in the way they do business to ensure they are resilient “, and in the way they treat customers. To ensure that this happens, today Ofgem is setting out two areas where we are working to tighten and strengthen our market watch.”
The first will see Ofgem order a series of market compliance reviews from vendors to ensure they meet their license terms, the Daily Express reported. Businesses will come under closer scrutiny of how direct debits are processed and how much they hold in customer credit balances.
Companies will also be “held to higher standards of overall performance in customer service and protection of vulnerable customers” to help Ofgem decide whether they meet the terms of their licence. If they fail to do so, the regulator “will not hesitate to take prompt action to enforce compliance, including imposing substantial fines”.
Ofgem says it will also tackle the misuse of customer credit balances. He said a major cause of failure for so many providers in recent months was the way they handled the money paid to them by customers.
Mr Brearley said some suppliers used money held when customer accounts were in credit to support their finances – “allowing them to pursue riskier business models with reduced financial resilience and higher likelihood of failure”. If an energy supplier goes bankrupt, then the cost of replacing these balances must be borne by other suppliers and, more importantly, by energy customers.
The Ofgem boss said: “Customer credit balances should only be used to reconcile invoices, not as a source of risk-free capital. That’s why we are considering options to close credit balances and payments of renewable energies in such a way that they are protected in the event of failure of a supplier.”
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