UK energy customers ‘bear the brunt’ of supplier failure

UK household energy bills have risen by billions of pounds as regulators develop a market that leaves the risk and cost of supplier failure to consumers, an investigation by the parliamentary spending watchdog has found.

Customers are expected to pay around £2.7bn to cover the cost of the collapse of 28 energy suppliers since June 2021, the National Audit Office said.The burden of failure has been distributed across all energy bills, And not just those of the bankrupt supplier’s customers, it added, that equates to about £94 per customer.

The supplier closures were driven by rising wholesale natural gas prices, which rose nearly six-fold from February 2021 to December 2021.but Ofgem has low barriers to entry for new entrants The regulator said its light-touch approach to monitoring increased the risk and cost of failure.

Gareth Davies, head of NAO, said: “In a situation where many households are already under enormous financial pressure, consumers are bearing the brunt of supplier failures. see their bills rise to record levels. A marketplace of suppliers that truly serves consumers must be developed. “

Some £1.8bn (or £66 per household) raised from energy bills went to services such as British Gas owns Attracted 2.2 million customers from failed suppliers, According to a report released Wednesday.

The £2.7bn includes an estimated £548m of additional claims from energy companies that have acquired customers from failed suppliers that have not yet been approved.

The regulator added that some failed suppliers also missed out on government payments to support renewable power generation schemes, which could add a further £296 million to customers’ bills.

NAO finds £900m has been spent, with another £1bn budgeted for The cost of energy to run a light bulb, the largest supplier has collapsed and is currently in government hands and up for sale. The government intends to recover the cost of bailing out Bulb from bill payers.

Ofgem is seeking a court ruling to determine whether it can bring a claim as a creditor in the management of the insolvent supplier. The NAO has warned that total costs to customers could be cut by as much as £500m if the regulator’s claims are successful, but could be significantly less than that.

While customers of the failed supplier are being moved to alternative suppliers without supply disruptions, Citizens Advice estimates the cost of this transfer has increased by £30 a month over the contract period as many are moved to higher tariffs .

Clients also faced other challenges, such as being unable to pay off debt schemes, which particularly affected vulnerable households.

Ofgem is seeking more resources from the UK Treasury, including new powers to make it more proactive. But stakeholders told the NAO that Ofgem had previously been slow to respond to potential licence breaches and demanded new powers without making full use of existing ones.

The NAO also criticised Ofgem for failing to thoroughly stress test the design of its energy bill price cap, which is limited to being introduced in 2019, to protect consumers from fluctuating gas prices.

Since 2019, the typical customer’s bill for energy purchased at a price cap of £1,971 a year has increased by 78%.

Ofgem said it accepted “the findings of the NAO report”. . . we are already working on all the issues raised”.

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