The government has rushed out new rules to provide an additional safety net for consumers of potentially bankrupt suppliers.
As unemployment rises and energy companies face mounting bad debts, the House of Lords today (9 October) approved new regulations that establish a “special administration regime” for financially distressed energy companies and prevent the risk of disruptions to supply.
The regulations extend the special administration, which was introduced during lockdown to help companies affected by the pandemic, to the energy sector.
Special administration would kick in if a company’s problems could not be resolved through the supplier of last resort (SOLR) regime.
The new regime provides a moratorium during which financially distressed companies will have a breathing space from their creditors, enabling them to pursue a rescue or restructuring.
Under the regulations, the company’s existing management would remain in control but would be oversee by an appointed monitor who must be a licenced insolvency practitioner.
The regime also allows Ofgem to continue to exercise its regulatory and enforcement powers, including the enforcement of licence obligations, without having to go to court during the moratorium period.
In an explanatory memorandum for the regulations, the government justified the immediate introduction by pointing to the “significantly increased financial pressures” energy companies face as a result of the coronavirus pandemic.
These will become more acute in the autumn and winter, it says, giving as an example the “significant payments” electricity suppliers will be liable for at the end of this month under the Renewables Obligation scheme.
It says: “The modifications made by this instrument must come into force without delay to assist the Secretary of State and Ofgem in considering whether to apply for special administration for any energy company to protect consumers.”
Introducing the regulations, junior climate change minister Lord Callanan said: “As in any competitive market, it is normal for energy suppliers to fail from time to time. Ofgem and government are focused on ensuring exits are orderly.”
The special administration regime had never been used in the energy sector, he added: “The government’s assessment is that it remains unlikely. However, of course, as a prudent government, we have to ensure that we have the powers and processes in place to act swiftly to protect consumers and other market participants, should it become necessary.”