More than a quarter of a million energy customers were moved on to standard variable tariffs (SVTs) following the supplier of last resort (SoLR) process in the last 18 months, research from Which? has found.
According to the research published today (1 July) some customers were hit with “overnight price hikes” of hundreds of pounds.
Out of 925,000 customers whose supplier failed, 283,000 were shifted onto SVTs, prompting Which? to accuse the system of being a “lottery” which “fails customers” .
For example, Brilliant Energy and Northumbria Energy’s 17,000 customers were moved onto SSE’s standard variable tariff, which at £1,253 a year was £1 less than the maximum permitted by the price cap.
An SSE spokesperson said its SVTs are within Ofgem’s price cap and reflect the view of the “efficient cost of supplying energy”.
The spokesperson added: “We regularly encourage customers to check whether another tariff might better suit their needs.
“Good energy service depends on much more than price, and we are proud to lead Citizens Advice Bureau’s latest customer service league table.
“Consumers need to be protected from irresponsible energy companies offering unsustainable pricing and bad service, leaving customers to pick up the bill when they go bust.
“We welcome new Ofgem rules for market entry, due to come into place this week.”
Following the demise of Economy Energy in January, 235,000 customers were moved onto SVTs via the SoLR process with Ovo Energy.
Its customers would either have been put onto the Ovo Simpler standard variable tariff which was at the level of the original price cap at £1,137 a year, moving to £5 below the new price cap level at £1,249 a year in April.
Customers placed onto the SVT by default have the option of switching to cheaper fixed tariff with Ovo or switching to another supplier.
Alternatively if customers had prepayment meters they would have moved to Boost’s (Ovo’s pay as you go) tariff in January at £1,134 a year.
Similarly 31,000 customers of failed firm Our Power went onto Utilita’s Smart Energy variable deal, where appropriate, at £1,240 which is £2 less per year than the prepayment meter price cap.
Not all customers who go through the SoLR process are placed onto SVTs however, with some companies such as Octopus Energy for example moving customers onto their cheapest tariffs.
Next Friday (5 July) suppliers will be subject to tougher licence conditions for market entry, following the spate of supplier failures.
Under Ofgem’s new rules applicants will be required to show they can “adequately fund” their operations for their first year, outline how they expect to comply with key regulatory and market obligations, and show their intentions to provide a proper level of customer service.
Directors and major shareholders of companies applying for a licence, as well as senior managers, will also have to show they are “fit and proper” to hold a licence.
Natalie Hitchins, Which? head of home products and services, said: “It’s wrong that energy customers face a lottery when their supplier goes bust – and that those who have followed advice to do their research and shop around for a better deal can be hit with such substantial price hikes.
“Ofgem must ensure its new checks are sufficiently robust to bring an end to this cycle of supplier failures, and alongside the government should explore ways to lessen the financial burden and make the process easier for consumers when energy firms collapse.”
Responding to the research, an Ofgem spokesperson said: “If a supplier fails, under our safety net we find a competitive deal for customers when appointing a new supplier.
“Around half of the customers from failed suppliers in the last 18 months have been transferred by their new supplier on to tariffs cheaper than their standard variable rate.
“In two instances, the new supplier’s tariff were the same price as the failed supplier’s.
“Appointed suppliers have to send welcome packs to customers with details of the new tariff they will be put on.
“Customers can ask to be moved onto a different tariff or shop around and switch to save money. No customers are charged exit fees if they decide to switch to another supplier.”
Meanwhile Matthew Vickers, chief executive at the Energy Ombudsman, said: “Ofgem’s supplier of last resort (SoLR) process provides a critical safety net for consumers in the event of an energy supplier going out of business.
“The collapse of an energy supplier, however, can sometimes lead to stressful situations for its former customers.
“In terms of our role as the Energy Ombudsman, we’re concerned that the SoLR safety net doesn’t encompass complaints that are escalated to us.
“We’ve raised this particular issue with Ofgem and we’re working together in a positive way to find a solution which best meets the needs of consumers.”