Energy Contract Security DepositOfgem finds areas of significant concern in business contracts

Ofgem has published its best practice guide for the use of an energy contract security deposit. Suppliers often use an energy contract security deposit to manage their risk exposure when contracting business consumers carrying a credit risk.

Ofgem has released this document to drive better practices and greater standardisation in the use of security deposits and to address consumer concerns regarding large security deposit requests and unclear calculations.

This guide is based on three overarching principles: transparency of supplier processes, consistency across supplier
practices, and fairness in the outcomes for consumers.

It sets out Ofgem’s expectations that suppliers should communicate their consumer creditworthiness assessment process in a clear and timely manner and should publish a high-level version of this on their website to promote transparency.

Further, suppliers following best practice will inform consumers in writing if they fail to meet the necessary credit threshold, providing the basis for the deposit request, the requested amount, the repayment timeframe, and any alternative options available.

Ofgem outlines that non-domestic consumers should be allowed to request partial or full refunds of their security deposit during the contractual term following a material improvement in their credit worthiness.

Ofgem recognises that the decision of whether a security deposit is required, and the level requested, is ultimately up to the supplier.

Furthermore, third-party intermediaries (TPIs) can facilitate the use of security deposits when contracting non-domestic consumers on behalf of suppliers, therefore carrying out the actions set out in this guide. Ofgem urges suppliers to notify any TPIs working with them of this guide and where applicable, for TPIs to seek best practice.

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