As wholesale gas prices rose over the last couple of weeks, various UK energy suppliers have been forced to pay more than their customers are.
This has meant several smaller ones have gone bust. Now, even larger companies may be in trouble.
Ofgem is in talks with City consulting firm Teneo, apparently to discuss ways the company could help with Ofgem’s safety net scheme.
Here’s what they are thought to have discussed and what it means for larger UK energy suppliers.
Why are gas prices rising?
For the last few weeks, a combination of factors have made wholesale gas prices rise, causing the collapse of various smaller energy suppliers in the UK.
Warnings were first given back in August that energy bills were expected to rise later on in the year, with gas prices reaching a record high as a result of inflation and the end of the pandemic.
To make matters worse, planned maintenance at electricity plants meant that 20% of the UK’s nuclear power went offline.
Up until now, the government has protected households from the brunt of the gas shortage with the energy price gap.
What is Teneo?
Teneo is a management consulting company based in the UK.
They specialise in advising CEOs and large companies in a variety of fields.
It’s been revealed that Ofgem has held talks with Teneo to discuss acting as a “special administrator” under a new government scheme designed to alleviate the strain of Ofgem’s safety net if a larger energy supplier goes under.
Why are Ofgem and Teneo working together?
At the moment, Ofgem is handling the collapse of smaller UK energy suppliers by moving customers to a new provider and ensuring that there is no loss of credit or service.
However, the number of customers for these smaller companies is usually in the tens or hundreds of thousands.
By comparison, British Gas has 6.9 million customers and EDF Energy has 5.7 million.
If companies of this size go under, then Ofgem’s safety net could be overwhelmed.
That’s why it’s believed that Teneo and Ofgem have been discussing the possibility of the consultancy taking on the operations of any larger failed energy suppliers to ensure customers are not left without power.
So far this year, 12 energy companies have been forced to shut down, meaning that Ofgem had to rehome over 2.2 million customers.
“Ofgem and government prepare for a wide range of scenarios and have longstanding contingency plans in place for any situation as needed,” a spokesperson for Ofgem told the Guardian. “These processes include speaking to a range of organisations.”
Will a leading energy supplier go bust?
While this is no confirmation that a leading energy supplier is in trouble, it is a sign that Ofgem is preparing for that eventuality at least.
There is no information about which of the larger UK energy companies might be causing these preparations.
It may well be that Ofgem is simply looking ahead to a worst-case scenario, but if energy prices continue to climb, it could cause issues even for larger providers.