Since January 2018 13 domestic energy suppliers have failed, affecting almost a million households and costing people over £172 million.
In a well functioning market we’d expect to see some suppliers occasionally exiting the market, but the recent number of failures has been unprecedented. Many of these failed companies failed to provide adequate service to consumers in the lead up to their exit, such as not refunding credit balances or responding to complaints.
The majority of consumers are protected when a supplier fails, however sometimes things go wrong. We’ve helped consumers who have struggled with issues, particularly reclaiming owed money and being chased for unexpected debt.
Almost a year ago energy regulator Ofgem launched its review of the supply licence – the rules by which energy companies must abide by to sell to households.
We’ve previously written how Ofgem and the government can improve the process, and put forward some key recommendations such as in our blog “What can the regulator do to reduce energy company failures?” or our report “Picking up the pieces”.
Here we look at how much progress has been made.
1) Stronger requirements to become a supplier
We’ve seen too many suppliers entering the market who were completely unprepared to offer a reasonable level of service. We called for Ofgem to do smarter checks on companies who want to sell energy.
Progress: In place.
In June Ofgem strengthened the rules for organisations wanting to become a supplier. These mean that suppliers need to have a credible business plan, that they understand their customer service obligations, and that they’re fit and proper to hold a licence.
2) Monitoring the market
There is a correlation between poor service and suppliers exiting the market. All the suppliers who failed had scored below average on our customer service star rating, with higher numbers of complaints, billing issues and long call waiting times. The scores of some recent failed suppliers are below:
Progress: Getting there
Ofgem has put forward its initial thoughts on how it proposes to monitor the market. This would mean that suppliers have to demonstrate how they are managing risks and promote good conduct from supplier’s management teams. This should enhance Ofgem’s oversight of suppliers, particularly at risky times, like when they grow rapidly. We’re broadly supportive of the proposals and if implemented, should reduce the risk to consumers.
3) Reducing the cost of failures
When a supplier fails, any credit a customer had built up is protected by the ‘safety net’. This cost is then spread across all consumer’s bills. We have been calling for Ofgem to take measures to stop excessive credit building up, or require suppliers to protect customer credit.
Progress: Getting there
Ofgem has proposed a set of flexible rules on suppliers to put provisions in place to prevent large credit balances building up. Although the flexibility should allow suppliers to choose the most suitable method of protecting credit balances for their business model, there needs to be ongoing monitoring to ensure everyone is abiding by the rules.
The largest cost of suppliers failures comes from unpaid bills for government energy schemes, in particular the Renewables Obligation.This is paid annually and last year by the time payments were due, there was a £58.6 million shortfall. This affects everyone, because the unpaid costs are collected through our bills.
We’ve called on the government to make payments more regular, at least quarterly, to reduce the size of unpaid bills if suppliers exit the market.
Progress: No action so far
To date, there has been no action by the government to make this payment more regular. We’re fast approaching the final deadline for this year’s Renewable Obligation payments, and it’s likely that some suppliers will not be able to pay.
4) Protecting consumers who were in debt with a failed supplier
Under Ofgem rules, consumers who fall behind on payments to their energy supplier have a number of protections, which should mean they can set up a fair repayment plan using a suitable payment method.
When a supplier fails, the customer debts are normally collected by the administrator, a company brought in to close down the failed supplier. These companies are not bound by the same rules, and can ask consumers for large payments at short notice, regardless of any existing agreements to repay. We’ve seen cases where consumers weren’t even aware they owed money to their supplier.
We don’t think it’s fair that customers in debt are treated this way. We’ve called for the government to change the rules to require administrators to follow Ofgem rules.
Progress: No action so far
To date, we have not seen any action from the government to help these consumers. In June we estimated that 32,000 consumers have been affected by this issue so far, and this is likely to grow if more suppliers fail.
Only one of our recommendations has been implemented after a year of the licensing review. Although some good ideas have been floated, we think Ofgem should move faster on protecting consumers. Government is even further behind, and needs to play its part to fix this problem.