Energy suppliers that go bust could be made to pay back costs to rivals

09 February 2024 , 12:32

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Ofgem has proposed a new plan that could lessen the financial impact on households when energy suppliers go out of business (Image: PA Wire/PA Images)

Ofgem, the energy regulator, has proposed a new plan that could lessen the financial impact on households when energy suppliers go under.

The proposal suggests that failed suppliers should be responsible for costs incurred by their rivals who take over their customers. The collapse of 29 energy suppliers between July 2021 and November 2022 is believed to have cost energy users around £2.7 billion, adding approximately £94 to the average household's bill, according to the Public Accounts Committee (PAC).

Ofgem has made several changes since these failures, which occurred during the early stages of the energy crisis as gas prices skyrocketed, in hopes of preventing such collapses in the future. However, this latest change is intended to come into effect if a supplier fails regardless.

Currently, when one supplier fails, another - known as the supplier of last resort - is selected by Ofgem to take on the collapsed supplier's customers, ensuring no one is left without gas or electricity. But this process often leaves the new supplier with additional costs, including the expense of transferring old customers to a new system or purchasing the gas and electricity needed by the new customers in advance.

In the past, new energy suppliers could spread these costs across all UK households with Ofgem's permission. This led to a £2.7 billion charge identified by the PAC. However, a new proposal would allow the new supplier to recover some of that cost from the failed supplier through the normal insolvency process.

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"Protecting customers is our top priority and we want to ensure that when companies go bust they are first in line to pay for their failure, not consumers," said Tim Jarvis, director general for markets at Ofgem. "We've already brought in tough new rules to make suppliers more financially stable, which includes requiring suppliers to have their own capital at risk so that they can better withstand shocks."

"If implemented, these new rules would go further towards shielding consumers from the impact of failures in the future and mean that shareholders would not be able to see any return from an insolvency process until the costs of keeping their customers on supply had been met."

Lawrence Matheson