It’s not uncommon for energy suppliers to go bust, but the rocketing gas prices are putting at risk tens of small firms as they can’t keep the price promise to their customers.
The UK had 71 suppliers at the start of the year including 55 small ones, but some industry commentators predict the latter number could shrink to ten.
Six have gone bust in the space of a few weeks: Hub Energy ceased trading in August while PfP Energy, MoneyPlus Energy, Utility Point, People’s Energy, Green and Avro Energy have all folded this month.
When a company plans to stop trading, it usually arranges to transfer its customers to another supplier through a trade sale.
In case it happens abruptly, for example because of financial issues, regulator Ofgem steps in.
It picks a new supplier to ensure customers can keep the light on and their credit balances remain protected: earlier this week, Centrica PLC (LSE:CNA)’s British Gas agreed to take on the customers of People’s Energy.
The process is called ‘Supplier of Last Resort’; if it doesn’t work, Ofgem asks the government for an ‘Energy Supply Company Administration Order’ which would put in place a ‘Special Administration Regime’ (‘SAR’).
This is for cases where there is a fear that a large supplier failure could cause stress on the other supplier mandated to take on the failed company(s) customers.
“This was introduced in the Energy Act 2011 and in simple terms, and in specific cases, allows the government to loan money to suppliers to avoid a domino effect of failure. However, this has never been used,” Ed Reed, head of training at Cornwall Insight, told Proactive.
He added that it’s unlikely that the government will resort to nationalisation.
A key issue in the current crisis is that many of the large suppliers don’t have much capacity left, while the smaller ones are squeezed by the high wholesale prices.
In this case, Ofgem and the Department for Business, Energy and Industrial Strategy would appoint a special administrator to temporarily run the business until such a new, suitable supplier is found.