Energy customers ‘could face picking up £172m tab left by collapse of firms’
Energy customers could face a potential total bill of £172 million stemming from suppliers which have collapsed since the start of last year, according to calculations from Citizens Advice.
Energy suppliers pay various industry bills, to cover costs including renewable generation, infrastructure and metering.
The charity’s research, which involved analysis of administrator reports for failed suppliers over a period going back to January 2018, suggests that £172 million in unpaid industry bills was left behind.
It warned that customers across Britain could eventually end up picking up this tab, with costs feeding through into their bills.
On top of this, there are “key protection gaps” for customers in debt to failed suppliers, according to Citizens Advice – potentially leaving thousands of people at risk of potentially aggressive debt collection practices.
When energy suppliers fail, Ofgem’s Supplier of Last Resort (SoLR) process appoints a new supplier for customers to ensure a continued energy supply, while the old supplier is taken over by administrators.
The cost of any energy used by the customer up to the point when the old supplier failed will need to be paid to the administrator.
Alternatively, in some cases the new supplier may “buy” these debts from the administrator, so they will collect them instead.
Citizens Advice said the way debts are dealt with can be different, depending on whether it is the administrator, or the new supplier collecting them.
It said administrators are not bound by the same rules as suppliers with a licence from Ofgem – and customers may see the amounts they are being chased for go up overnight.
Since January 2018, Citizens Advice has helped over 1,000 people with debt issues related to failed suppliers, who owe £250 on average.
Citizens Advice said an elderly client had agreed to pay £10 monthly towards their debt, but after their supplier failed, the administrators requested the full amount of nearly £350 and threatened to bring in bailiffs.
The customer did not understand what had happened and was left feeling distressed and anxious, the charity said.
Citizens Advice wants to see action to “fix the protection gap” for customers who owe money to energy suppliers when they collapse.
It said administrators of all energy companies should have a duty to consider consumer interests and follow the same rules as suppliers.
Citizens Advice would also like to see regular payments of industry costs – in particular the Renewables Obligation (RO) – by suppliers, to stop the build-up of big debts that may eventually be paid by consumers.
Gillian Guy, chief executive of Citizens Advice, said: “Consumers shouldn’t have to foot the multimillion-pound bill left behind when companies collapse – and they certainly shouldn’t lose their usual protections in the process.
“The Energy White Paper is the perfect opportunity for the Government to close the gap in protections and limit the cost to consumers of any future supplier failures. It must act now.”
Philippa Pickford, Ofgem’s director for future retail markets, said: “Competition in the energy market has helped to drive down prices for consumers.
“Ofgem introduced new tests this summer for companies applying for a licence to supply energy, to help drive up standards, ensure they meet their industry obligations and reduce the risk – and cost – of supplier failure.
“Ofgem will also consult in the autumn on tougher rules for existing suppliers.
“Under Ofgem’s safety net, if a supplier fails the energy supply and credit balances of its customers are protected.
“We agree with Citizens Advice that this process has generally worked well and we are looking at ways of improving the experience of these customers when they are transferred to new suppliers and to reduce costs associated with supplier failure.”
Energy UK director of policy, Audrey Gallacher said: “It’s a particular concern that, as Citizens Advice points out, administrators taking charge of failed companies are not required to treat indebted customers with the same consideration as suppliers.
“So we fully support their call for existing consumer protection requirements to be extended to administrators.
“The increase in competition and the number of suppliers in recent years have been great for customers in providing choice and driving down prices.
“But we welcome Ofgem bringing in tougher checks for suppliers entering and operating in the market to ensure they have sustainable business models and are adequately financed to serve their customers.
“Ofgem now needs to ensure that the ongoing operation of companies is monitored to minimise the risk of additional costs being loaded on to consumers.”