Ofgem intends to implement a £16 fee for households in order to assist energy companies in recouping £3 billion in unpaid debts.

The energy regulator has proposed a plan that would require households to pay an additional £16 on their energy bills. This would assist suppliers in recouping nearly £3 billion in unpaid debts from customers who are facing financial difficulties.

Ofgem said the one-off extra charge, which would be levied at £1.33 a month on bills paid between April next year and March 2025, was to “protect the market and consumers” after figures showed energy debt had hit a record £3bn.

The level of unpaid debt, representing money owed by customers that is unlikely to be paid back, has significantly risen due to elevated wholesale energy costs and the general financial strain on households caused by the cost of living crisis.

According to Tim Jarvis, the director general for markets at Ofgem, the rising cost of living is greatly impacting individuals, as shown by the record-high levels of energy debt.

Due to the high amount of debt in the system, it is necessary to take measures to ensure that suppliers are able to cover their fair expenses. This will help keep the market strong and enable suppliers to assist consumers in handling their debts.

The energy regulator for Great Britain, Ofgem, stated that this one-time action would have a lower cost for consumers compared to the alternative of suppliers being forced to shut down.

In 2021, the cost of wholesale energy started increasing and saw a significant spike following Russia’s attack on Ukraine in the previous year, resulting in the closure of approximately 30 energy companies.

According to Ofgem, this resulted in an additional charge of £82 for every energy customer in the UK to cover the expenses of ensuring that households were not disconnected.

The regulatory body announced that the proposal’s consultation process would involve representatives from the energy sector, consumer organizations, and the general public.

Jarvis stated that the current proposals are not taken lightly and are deemed necessary to tackle the issue at hand. This method will guarantee fair cost recovery without unfairly targeting a specific group of customers.

The suggested strategy does not involve transferring additional expenses to prepayment meter users. This is because these meters operate on a pay-as-you-go basis, which prevents PPM customers from accruing the same amount of debt as credit customers.

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According to Ofgem, other industries often include allowances for bad debt expenses in their prices. The energy sector could also do this through the price cap system in order to recover these costs in a fair and efficient manner.

At the start of this year, the energy price cap in Britain for the average annual dual-fuel bill decreased from £2,500 to £1,928, effective January 2024.

“The implementation of the price cap has successfully safeguarded consumers against fluctuations in the gas market,” stated Jarvis. “Nevertheless, it is a simplistic approach in an evolving energy industry and may require adjustments in order to ensure ongoing consumer protection.”

Source: theguardian.com

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