What happens if your energy supplier goes BUST
Don’t pay upfront say experts as raft of smaller power firms risk failure
AHANDFUL of small-scale household gas and electricity suppliers are at significant risk of failure, according to energy insiders. Should a supplier flop – as Future Energy did earlier this month – it would plunge households into billing limbo and threaten consumers’ appetite for switching deals to save money.
Stronger competition is needed to break the dominance of the ‘Big Six’ suppliers – British Gas, E.On, ScottishPower, npower, EDF Energy and SSE.
But the worry now is that too many new entrants have flooded the arena, with some taking customer money upfront and operating as novices in a market that could swallow profits in a flash.
The number of new energy companies supplying British homes has increased by more than a third in little more than a year – from 48 in late 2016 to 66 now.
Joe Malinowski, of comparison website TheEnergyShop, says: ‘Customers should be wary of companies asking for money upfront before they have even taken over the supply of gas and electricity to your home.
‘Some will rely heavily on your money while gambling on wholesale energy markets, without fixing deals in advance. They are at risk of going bust quickly, especially if they have minimal equity in the business acting as a buffer.’
SUPPLIER OF LAST RESORT
WHEN an energy provider goes bust, market regulator Ofgem appoints a supplier to take over customer accounts – a process known as ‘supplier of last resort’.
Households who are transferred to a new provider are placed on a ‘deemed’ contract, which could be more expensive than the old deal because the new provider is taking on more risk and cost. Ofgem says any credit built up with the old supplier would be protected. This safety net scheme has only been used twice in the last ten years. But both times have been in the last 15 months, coinciding with a boom in the number of new energy providers.
Most recently it was used for customers of Future Energy which ceased trading earlier this month. Its 10,000 customers have been shunted over to rival supplier Green Star Energy.
Previously the rescue rules were used for GB Energy Supply – back in November 2016 – when Co-operative Energy was chosen to absorb 160,000 customer accounts.
Ethical energy provider Brighter World Energy, which used its profits to establish electricity supply in remote African villages, also folded in December last year.
As a partner of not-for-profit provider Robin Hood Energy, owned by Nottingham City Council, a sup- plier of last resort was not needed. Customers were transferred over to Robin Hood Energy on the same terms.
But there could be more trouble to come as record numbers of customers abandon the Big Six and move to challenger brands.
Small and medium-sized companies netted 175,000 and 165,000 customers respectively in October last year – a rise of 92 per cent and 140 per cent from December 2016.
Of the 400,000 households who changed electricity tariffs in January this year, one quarter chose a small or mid-tier supplier.
Many young suppliers have built up their brands and are now established challengers to the Big Six. Often they represent good value for money and are recognised for good customer service. But experts say others have yet to prove themselves and it is likely they are not sitting on firm financial foundations.
Peter Earl, head of energy at switching website comparethemarket, says: ‘There is a risk in choosing a start-up. Companies which are small, new and poorly capitalised may not have sufficient scale to meet their customers’ energy requirements.
‘The collapse of companies such as Future Energy and GB Energy Supply can make customers worry about switching away from a trusted, more established provider.’
‘TOO EASY’ TO START AN ENERGY COMPANY
THERE is criticism of regulator Ofgem for too readily waving new providers through the licence application process.
Gillian Guy, of consumer group Citizens Advice, says: ‘New entrants to the market should face greater scrutiny.
‘It is too easy for new firms to set themselves up as energy suppliers, often before they are able to provide good quality customer service.
‘Ultimately it is energy customers who pay the price when firms are not up to scratch.’
Ofgem concedes that granting a new supplier a licence does not give an indication about the financial health of the company.
It says it only carries out checks on applicants to confirm they are
not insolvent ‘where possible’. But a spokesman says it ‘closely monitors suppliers’ conduct and any potential risks to consumers’.
Malinowski says: ‘The hurdles for setting up as an energy supplier are low.
‘Companies that already have a licence ready to go can simply be bought off the shelf.’
An example of this is ‘Supplier in a Box’ operated by Utiligroup – offering a new entrant everything it needs to get up and running.
It was behind Co-operative Energy which has flourished as a mid-tier provider.
Another customer was Tempus Energy, which closed its UK energy supply business following the Brexit vote in 2016. The company asked Ofgem to revoke its electricity supply licence and all of its customers switched elsewhere.
CUSTOMER SERVICE PROBLEMS
HOUSEHOLDERS comparing tariffs should be careful not to pick a deal on price alone.
Malinowski says: ‘It is a minefield out there. If you have not heard of a company you have to do your research.
‘Check the terms and conditions for payment and read customer and energy expert reviews.’
Though bigger energy providers field the highest proportion of complaints, when a small supplier hits a bump in the road often it does not have the resources to deal with problems swiftly. For example, Nottingham-based gas and electricity supplier Iresa, which is being investigated by Ofgem over its treatment of customers, has struggled with large volumes of calls.
When The Mail on Sunday tried calling the company last week, it was 110th in the queue.
Despite the broad spectrum of customer experiences across the market, switching is still the easiest way to save significant sums of money on bills.
Earl adds: ‘People should not be put off switching for two good reasons.
‘First, it is the best means of saving hundreds of pounds a year on your energy bill.
‘Secondly, if a company collapses, Ofgem will transfer your contract to a new provider and at no time should you lose power.’