Energy firm collapses may add £2.bn to bills

Household energy bills are likely to increase by around £2.7billion to cover the costs of the 28 energy suppliers that have gone bust in the last year, it has emerged.

The National Audit Office (NA O) has said that, while the failures were caused by massive changes in the energy market, regulator Ofgem is also partly to blame.

The watchdog's approach to how it licensed and monitored suppliers over much of the last decade increased the risk of them failing, but also added to costs when they did, the NAO found.

Ofgem's processes have been ensuring ouseholds do not have their energy cut off when a supplier fails. It fixes this through the so-called supplier of last resort system which asks a rival company to take over the supply of energy to those households.

But the system has many pitfalls. For instance, customers will often be moved to a more expensive deal with their new supplier – Citizens Advice estimates it adds about £30 per month to bills for the average customer.

Some customers will also be taken off their debt-repayment plans, which hits the most vulnerable hardest.

But the most widespread problem is the cost of transferring the customers. Instead of just affecting the customers of the failed supplier, it is spread over all households.

It will cost households a com bin ed£2.7bntoc over the transfer of2.4m customers to a new supplier – around £94 each – Ofgem estimates.

The Department for Business, Energy and Industrial Strategy (BEIS) has set aside £1.9bn so far to run the energy company in administration. This cost could be passed on to bill-payers.