UK households pick up £80m bill left over from failed energy firms

The_Green_Hornet

British households face an £80m bill to cover the costs of transferring more than half a million customers from bust energy firms, raising questions over whether the regulatory regime is fit for purpose.

Eight suppliers have ceased trading this year amid rising wholesale prices, forcing energy regulator Ofgem to step in and appoint new suppliers. Four have collapsed in the past two months alone, including One Select on Monday.

Each of the UK’s 28m homes could have an average of £1.75 added to their energy bills to compensate the new suppliers, according to a Guardian analysis.

https://www.theguardian.com/money/2018/dec/16/uk-householders-pick-up-bill-for-bust-energy-firms

System

The Consumer Levy (Safety Net) is an ill thought through scheme which Ofgem imposed on the suppliers based on its assessment that a supplier failure would be a rare occurrence. Moreover, it was never envisaged that suppliers would start offering buy in advance energy deals: for example, Powershop and Eversmart. Ofgem could sort out the ‘wheat from the chaff’ if it imposed an insurance credit bond on all suppliers - similar to that which is required before any company is awarded an Air Transport Operator’s Licence. The bank and insurance market would then carry out the periodic business due diligence checks that Ofgem has consistently tried to argue is not an energy regulator’s function.

Xbigman

Ofgem had a remit from the government to increase competition, which they were never set up to do. The natural result of pushing something onto a regulator that it had no experience in was that Ofgem took a view that all barriers to market entry were bad. Insisting that companies were properly financed was classed as a barrier and was thus ignored. Just as night follows day, poorly financed companies are going under the first time the energy market comes under any stress.

I'm not sure what Ofgem could do that would have had a better result. If they had insisted on proper financing (or insurance credit bonds) they would now be getting criticised for the large number of small firms they had denied licences to.

I also have a voice in my head saying that if a small energy company is charging £100 a year less than a larger company but it goes bust, then maybe the larger companies prices aren't quite the rip off everyone thinks. I am referring to general pricing not the SVT rip off, which should be stopped (and not by an artificial cap).




Darren

Terry98

There was a bit about this on Moneybox last Saturday.

Ofgem's remit to increase competition has worked by getting many more suppliers into the market. A couple of years ago it seemed the 'Big 6' were having everything their own way.

Unfortunately a few of the new suppliers business plans were not very well thought out and losing 8 suppliers might just be the inevitable consequence of increasing competition.

wakeupalarm

The problem is that energy consumers are picking up the cost of all these businesses going bust by increases in bills. It's like a lot of the problems with the energy industry, be it smart meters, or improvements to energy efficiency rather than the energy companies paying for it, the costs are just passed on to other consumers like as if we have a bottomless pit of money just to throw at any problem they can come up with.