Energy Companies going bust

dosh37

Over the last few months Tonik Energy, Yorkshire Energy, Simplicity Energy, Green Network Energy have all ceased trading.

We are all being advised to compare and switch supplier to get the best deals but it seems to me the comparison process needs to include some sort of guide as to how safe these companies are. It's taken 4 months to get my credit repaid after Tonik went bust. I really don't want to go through that again.

Does Ofgem keep an eye on how profitable energy companies are and how the business is being run or do they just sit back and wait until it's too late before taking any action?

[Deleted User]

dosh37 said:

Does Ofgem keep an eye on how profitable energy companies are and how the business is being run or do they just sit back and wait until it's too late before taking any action?

What action can they reasonably take? If Ofgem was to get involved then I suggest that the first thing that would happen is that customers would leave in droves. Most suppliers fail because they have set tariffs that are financially unsustainable. If Ofgem decided to offer struggling suppliers a few £Ms to keep them going, there would undoubtedly be an outcry from the better run suppliers on competition grounds.

UnclaimedEnergy

The main things to look at would be:

• How long has the supplier been in the market (most, if not all suppliers had been in the market for at least 2-3 years before going bust)
• How much external financial backing do they have? (Octopus Energy for example has massive financial backing, Bulb were able to survive £120m losses)

It's not always easy to say though. Suppliers such as Outfox the Market shouldn't really still be around but are because their owners do dodgy accounting and funnel cash into it to historically keep prices low.

Other suppliers such as Green Network Energy shouldn't had really gone bust because they had the customer base, prices weren't the lowest and it seemed like the owners were keeping it going. It just sounds like someone made a mistake with their hedging strategy.

Tonik went bust because they switched billing systems and were only billing 75% of customers, matched with cheap tariffs.
Yorkshire Energy didn't have any profitable tariffs so were constantly losing money
Simplicity I'm not so sure, but may just have been not enough capital behind it.

23 suppliers have gone bust since 2018 and nearly the same number have sold off their customer base. There will definitely be more to go bust soon and the best ones to avoid are ones which sound like they're having cash issues:

• Utility Point - Delayed Refunds
• Symbio Energy - Taking multiple Direct Debits
• Green.Energy - promotional offers to get customers to deposit more money etc. (I feel like they should be fine for another year though)

At the end of the day though, you will get your credit back if you go through the SoLR process, there hasn't been one yet which chose not to honor it. Therefore if you can afford to occasionally wait a month for the credit to be refunded, then you're better off in the long run being with a cheaper supplier.

UnclaimedEnergy

dosh37 said:

Does Ofgem keep an eye on how profitable energy companies are and how the business is being run or do they just sit back and wait until it's too late before taking any action?

In the past no, however the new Supplier Licensing Review compliances came into effect on the 22nd January, which includes milestone assessments by Ofgem once a supplier hits 50k and 200k customers.

Shedman

Ofgem generally seem to know a few days before it becomes public knowledge that a supplier is about to fail/cease trading from what I have gleaned picking through the bones of the last few failures and so their action is purely to get the SOLR process in hand and get other suppliers to bid so that there is minimal delay between public awareness of failed supplier and when a new supplier is announced.

The point where Ofgem should be paying closer scrutiny to suppliers is at the time of granting a supply licence and there should be something in place (bonds, guarantees, etc) to ensure that the supplier has the necessary capitalisation and line of credit to survive for a period....trouble is how long a period 1 yr, 2yrs, 5 yrs?  What I doubt Ofgem can do is dictate what tariffs a supplier will offer so although they may appear financial sound at the outset there probably isn't anything to stop them offering uneconomic tariffs in the hope of growing their way into profit.  Most failed suppliers seems to fail in the 2nd or 3rd year so checking that they had sufficient wherewithal to survive 1 year wouldn't seem to cut the mustard.  

It's a tricky one for sure and I guess over the next year or two we will see a number of other failures whilst the market effectively sorts itself out where the fitter, stronger ones with the largest balance sheets survive and the level of competition reduces to a more sustainable level...but of course that means that tariffs will continue to increase towards the mean.  Restricting the number of new supplier licences might help to stabilise things but not sure whether Ofgem have the power to refuse new entrants if they 'appear' financial robust enough at outset.

UnclaimedEnergy

There isn't that many new entrants any more so it isn't as much of an issue, most of the ones going bust entered the market between 2016-2018 when there was a massive influx. Recently Neon Reef are the only real new entrant available on comparison sites (and before that Green.Energy and Symbio)

Rebel Energy seem to be the next one to join the market in 2021, however apart from that there isn't' many I'm aware of in the pipeline.

Shedman

UnclaimedEnergy said:

There isn't that many new entrants any more so it isn't as much of an issue, most of the ones going bust entered the market between 2016-2018 when there was a massive influx. Recently Neon Reef are the only real new entrant available on comparison sites (and before that Green.Energy and Symbio)

Rebel Energy seem to be the next one to join the market in 2021, however apart from that there isn't' many I'm aware of in the pipeline.

Also seems to be one called Superpower Energy that has applied at end of Jan 21 for gas and electric licence for both domestic and non domestic.

As Unclaimed says the pipeline looks to have virtually ceased as per Ofgem application list there doesn't to appear to be any other domestic supply applications for the last year.

Phones4Chris

UnclaimedEnergy said:

dosh37 said:

Does Ofgem keep an eye on how profitable energy companies are and how the business is being run or do they just sit back and wait until it's too late before taking any action?

In the past no, however the new Supplier Licensing Review compliances came into effect on the 22nd January, which includes milestone assessments by Ofgem once a supplier hits 50k and 200k customers.

It's very simple really, OFGEM need a much stricter set of rules about financing, capital, directors, and so on BEFORE issuing a licence!

rp1974

Rose tinted glasses and all that,were things that much better in ye olden times with no choice of supplier then?.

[Deleted User]

We should be careful of what we wish for. Greater regulation; financial security; default bonds etc all come with a cost. These costs will have to be covered by guess who - us, in the form of higher energy bills. 

UnclaimedEnergy

Phones4Chris said:

UnclaimedEnergy said:

dosh37 said:

Does Ofgem keep an eye on how profitable energy companies are and how the business is being run or do they just sit back and wait until it's too late before taking any action?

In the past no, however the new Supplier Licensing Review compliances came into effect on the 22nd January, which includes milestone assessments by Ofgem once a supplier hits 50k and 200k customers.

It's very simple really, OFGEM need a much stricter set of rules about financing, capital, directors, and so on BEFORE issuing a licence!

Yes and the new SLR compliances should address this as well.

Shedman said:

Also seems to be one called Superpower Energy that has applied at end of Jan 21 for gas and electric licence for both domestic and non domestic.

OMG yeah I can't believe I could forget about them after seeing this poster/advert