More than 233,000 customers from three failed energy suppliers will be transferred to E.ON Next in a deal arranged by the regulator, as the surge in gas prices roils all but the UK’s largest suppliers.
Mid-sized energy suppliers Igloo and Symbio and small provider Enstroga collapsed last week, joining seven other suppliers that have toppled to surging gas prices since August. Their customers will be absorbed by the green-oriented consumer brand of E.ON, with the credit balances of domestic customers protected.
E.ON Next was selected by Ofgem through a competitive supplier of last resort process designed to “get the best deal possible” for orphaned customers. But customers will likely see their bills rise as they move from a cheaper, and more financially precarious, provider to one of the energy market’s giants.
These large companies, including members of the defunct ‘Big Six,’ are the only suppliers with the financial resources to absorb hundreds of thousands of loss-making customers overnight.
In recent weeks, British Gas, the UK’s largest supplier, has taken on nearly 450,000 customers abandoned by the collapse of People’s Energy, PfP Energy and Money Plus. Fellow Big Six member EDF has accepted the 220,000 customers of Utility Point. Triple unicorn startup Octopus took on Avro’s 580,000 customers, pushing its customer rolls to 2.1 million in the UK.
But these giants tend to charge high prices: E.ON charges customers on its standard variable tariff the maximum permitted under the price cap: £1,277 per year for a dual-fuel household with typical use.
Citizens Advice has estimated that customers transferred from a fixed deal with a challenger supplier to a standard variable tariff with a large company will see their monthly energy bills rise by a typical £30.
But the impact of these supplier failures will extend far beyond this winter and the customers abandoned. As the market consolidates around a handful of large companies, less competition could mean higher bills for everyone.
By some forecasts, just 10 energy companies will stand by the spring, down from the 70 that operated at the beginning of the year.
“I’m not tolling a death knell for competition,” said Dermot Nolan, chief executive of Ofgem until 2020, told the Guardian. “But it will be a significant shock for the supply market.”
But this winter could also serve to cull cowboy companies that were selling energy at unsustainably low prices, often with poor customer service.
“The loss of small suppliers would clearly constrain the number of tariffs available to customers in the short term,” said Ellen Fraser, partner at consultancy Baringa, which predicted the collapse of 39 suppliers this winter.
“But in reality many small suppliers were offering tariffs which were well below the cost of supply and used to prop up unsustainable business models. That’s not the sign of a healthy market,” she added.
While upstart companies often behaved badly, so did the market’s old hands, Octopus’s Greg Jackson said. “The key now is for a calm resolution to the ‘idiot companies’ problem without losing the competitiveness which prevents oligopoly pricing behaviour from incumbents,” he tweeted.
Meanwhile, by finding a supplier of last resort for these 233,000 customers, Ofgem has demonstrated that its standard mechanism for dealing with supplier failures is still functioning. But market watchers have warned that the collapse of a large supplier—Bulb, with 1.7 million accounts, is teetering—could overwhelm the system. Anticipating this, Ofgem has put City firm Teneo on standby to step in and run a failed supplier as a special administrator if needed.
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