Will YOUR energy supplier be the next to go bust?

ACHALLENGING year lies ahead for energy suppliers, raising expectations of further company failures. Many customers are wondering if their provider is next in line, after eight gas and electricity suppliers went bust last year – and two already this year.

Economy Energy and Our Power were the latest firms to fold, with customers taken on by Ovo Energy and Utilita respectively. Before last year, energy regulator Ofgem’s safety net – where a provider is called upon to rescue customers stranded by the failure of a rival – was used only once in a decade.

This demonstrates the impact an injection of small suppliers has had on the market. Some are serious businesses and growing stronger, while others are scraping by and sometimes failing.

Victoria Arrington, of comparison website energyhelpline, says the year ahead will be ‘extremely challenging’ for suppliers as they seek to survive in a ‘particularly harsh’ market.

Andrew Long, founder of automatic switching service Switchcraft, says: ‘There’s a real risk of further bankruptcies. It’s become so easy to set up an energy supplier that many new ones have emerged without a realistic business plan or proper funding.’

The red flags to look out for

EXPERTS say there are warning signs customers can look out for – even if they are not always conclusive evidence a supplier is in trouble.

A drop in the quality of customer service is often a signal that something is awry. Most switching services and comparison websites now issue star ratings for energy companies based on customer satisfaction.

Arrington says: ‘Several energy suppliers that recently went bust had rock bottom one-star ratings – including Spark Energy and Extra Energy. A low-star rating often indicates a supplier is receiving a lot of complaints, or is poor at responding to customers’ queries.’ Ofgem’s website provides clues too – including details of sanctions against companies, such as banning them from taking on new customers.

Long adds: ‘Complaints on review websites and consumer forums are also red flags. People should check the likes of Trustpilot, organisations such as Citizens Advice and data from a switching service.’ Further warning signs include not returning money to customers who have paid more for energy than they have consumed – or failing to make payments to the Government. Economy Energy, for example, failed to pay a Government subsidy for renewable energy with customer complaints piling up ahead of its collapse. Arrington says: ‘An easy thing to do is to set up a news alert about your supplier on your phone or computer. If trusted news sources report problems, it might be time to look elsewhere for your energy.’ In the event of a supplier failure, any credit balance is protected by both Ofgem and the new supplier chosen to take over customer accounts. But those who switched away before reclaiming money owed risk a long wait to reclaim it.

For those looking to change supplier because they are unhappy with their existing provider, new deals can be found – based on a mix of price and service – by using a comparison website such as TheEnergyShop, uSwitch and energyhelpline (0800 0740745).

Alternatively, consider using an auto-switching service. Once you have registered, these will seamlessly shift you on to cheaper deals as they become available. They also filter out suppliers at risk of failure or of servicing customers poorly. Providers include Switchcraft, Switchd, Labrador, Look After My Bills, flipper and weflip.

Arrington adds: ‘It’s worth knowing that anyone can switch up to 42 days before their tariff end date without incurring a cancellation or exit fee. Suppliers won’t always tell you this.’

Some companies, such as Bulb, will cover exit fees if a customer wants to break free early from a provider. Also, the money saved on bills is often enough to cover any exit fee.

For more details about changing supplier and the protections that are in place, visit energyswitchguarantee.com.

Ofgem is introducing stricter requirements on new energy suppliers, including checks on their financial robustness. But these will not be in place until late spring.