Britain’s largest energy suppliers are warning that they could refuse to take on the customers of failed competitors, along with billions of liabilities, unless the government reconsiders a rescue package.
Last week the government was reportedly mulling taxpayer-backed loans to the country’s strongest energy companies to help them absorb the millions of households expected to be orphaned by supplier failures this winter. However, business and energy secretary Kwasi Kwarteng later rowed back from those plans, insisting that the industry had to solve the problem of abandoned customers by itself.
But the most robust energy suppliers say taking on loss-making customers will imperil their own businesses and they may well refuse to do so without assistance.
This refusal means the supplier of last resort (SoLR) process, Ofgem’s standard mechanism for handling energy company failures, may break down.
The energy market is reeling from a surge in wholesale natural gas prices, which has pushed the annual cost of supplying a household to about £500 above the current level of the price cap. Absorbing hundreds of thousands, or even millions, of these customers therefore means taking on billions in liabilities, Keith Anderson, chief executive of fifth-largest supplier Scottish Power, said.
“If you think this issue covers two to four million customers, because there are a lot of suppliers out there, you could be talking about £2bn, £3bn, £4bn, £5bn [in liabilities],” he said.
“It is not us asking for a bailout. I don’t need these customers,” he added.
Additionally, few suppliers have the administrative capacity to absorb hundreds of thousands of customers overnight.
Chief executives of 800,000 account-strong Utilita and smaller renewable supplier Good Energy have already said they aren’t capable of rescuing stranded customers.
Utilita’s Bill Bullen told the Financial Times: “Without some kind of backing . . . it’s highly unlikely we will be able to go ahead and absorb anyone else.”
Good Energy’s Nigel Pocklington told the BBC that larger firms are better equipped to absorb homeless customers that, at least initially, are “loss-making.”
Ofgem “will have been looking around for who was willing to take customers on,” Pocklington said. ”Octopus are a very well-reserved and well-run business will feel that while they may be looking at a short-term loss for these customers, the long-term gain will be strong.”
State-backed loans could mean more energy suppliers are willing to accommodate deserted customers. This solution would mean the losses energy companies incur this winter could be recouped from customers’ bills over five to ten years.
As an alternative, Kwarteng has suggested that a “special administrator” could be appointed to run suppliers if the supplier of last resort mechanism breaks down. But energy executives say that would entail effectively creating a nationalised energy supplier.
One executive of a supplier told the FT that such a plan would likely involve the government taking over a large failing supplier, retaining its staff and IT system to manage customer accounts and buying potentially billions of pounds of gas and electricity.
“Special administration doesn’t get the government out of putting money in,” another said.
A spokesperson for the Department of Business, Energy and Industrial Strategy (BEIS) downplayed concerns that the supplier of last resort process is under strain.
“When suppliers do cease trading, we have a clear, well-rehearsed process in place to make sure customers are protected and supply is not interrupted."
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