More than a quarter of a million customers have been moved on to expensive energy deals after their supplier went bust in the last year – with some hit by overnight price hikes of hundreds of pounds, a report has claimed.
The study found that of 925,000 energy customers whose supplier failed in the past 18 months, more than a quarter – 283,000 – were shifted onto standard variable tariffs, deals which often tend to be among the most expensive available on the market.
Firms acting as a ‘Supplier of Last Resort’ play an important role in keeping gas and electricity supplies running – and they may have to find ways to cover the extra costs they incur as a result of taking on extra customers.
However, consumer watchdog Which? said that the current system fails consumers – leaving them facing a lottery, not knowing whether Ofgem will move them onto one of the cheapest or most expensive deals on the market when their supplier goes bust.
Brilliant Energy and Northumbria Energy’s 17,000 customers were moved onto Perth–based SSE’s standard variable tariff, which at £1,253 a year was £1 less than the maximum permitted by the price cap. SSE told Which? these customers faced price increases of 38 per cent on average.
After Edinburgh–based Our Power collapsed in February, 31,000 prepayment customers went onto Utilita’s Smart Energy variable deal, where appropriate, at £1,240 – £2 less per year than the prepayment meter price cap. Not all Suppliers of Last Resort put customers onto standard variable tariffs with some, including Octopus Energy, moving customers onto their cheapest tariffs.
A series of gas and electricity firms, ten in total, have stopped trading since the beginning of 2018, with rivals claiming many offered unsustainable loss–leading tariffs – exposing serious flaws in Ofgem’s system for issuing gas and electricity supplier licences.
The knock–on effects of an energy firm going bust go much further than sudden price increases for customers. Some customers have reported being threatened with bailiffs over debts owed to a failed supplier, while all consumers face paying more to cover industry–wide costs when businesses go under.
Which? is calling on Ofgem to ensure that its new tests for suppliers – due to start this week on 5 July – are sufficiently stringent that they prevent so many weak and unfit firms from entering the market if they can not sustain prices and customer service levels. The ongoing reforms for existing energy firms must also ensure current suppliers’ financial positions are sustainable.
Ofgem, and the government in its forthcoming energy White Paper, should explore ways to lessen the financial burden and improve the overall experience for consumers when energy suppliers go bust.
Natalie Hitchins, Which? head of home products and services, said: “It’s wrong that energy customers face a lottery when their supplier goes bust – and that those who have followed advice to do their research and shop around for a better deal can be hit with such substantial price hikes.
“Ofgem must ensure its new checks are sufficiently robust to bring an end to this cycle of supplier failures, and alongside the government should explore ways to lessen the financial burden and make the process easier for consumers when energy firms collapse.
“For now, switching is still the best way to get a good deal and better service, so anyone unhappy with the service they are receiving or the price they are paying should check the results of our customer satisfaction survey.”