What happens when your energy supplier goes bust?

If your energy supplier goes bust, don’t panic - the Ofgem safety net means you’ll not be left without gas and electricity, and the regulator will pass your contract onto another supplier. This new supplier, known as a supplier of last resort (SoLR), will then provide energy to your home until you switch to a better deal with another supplier.

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Let’s take a look at why some energy firms go bust, and explain further what you should do if your supplier stops trading.

Why do energy suppliers go bust?

The recent spate of energy company collapses has been attributed to a number of factors, including rising wholesale prices, tighter margins, the cost of government obligations and even poor customer service.

Rising wholesale costs and tighter margins

Rising wholesale costs - an increase in the price energy firms pay to buy gas and electricity to supply their customers - are a big problem for struggling suppliers, particularly those who try to keep prices low for customers.

Iresa Energy was one such company that couldn’t sustain its business model in the face of increased wholesale prices, and eventually went bust in July 2018. Ofgem appointed Octopus Energy as the SoLR, and Iresa’s problems were outlined in a statement from the new supplier:

“There is a reason Iresa went bust. We [Octopus Energy] regularly update our prices to reflect the wholesale cost of the energy we supply you. Although we’ve won numerous awards for our customer service, we add less than 5% to your energy bill to cover the entire costs of running our business.

“There are a number of energy suppliers offering break-even or below cost energy at the moment, and they will either sting you with price rises or go bust. We’d rather offer our customers long term good value with customer service you can trust.”

The cost of government obligations

Energy suppliers have to cover the cost of government programs designed to help save energy, encourage the take up of renewable energy and support vulnerable customers, such as the elderly. Again, suppliers who have tight margins and want to keep costs low for customers have struggled to keep up with these costs.

Spark Energy, for instance, ceased trading in November 2018, just days after it was announced that the supplier had missed a deadline to make a £14.4 million renewable energy payment.

Poor customer service

It might sound hard to believe, but some energy companies go under because they can’t offer customers the level of service required.

Extra Energy, which also went bust in November 2018, did so while being investigated by Ofgem regarding more than 1,160 complaints that had been made against it in a 12-month period.

One Select also had customer service issues before finally going bust in December 2018 - coming bottom of the Citizens Advice’s star rating table, which ranks the customer service levels of energy suppliers - while Economy Energy went bust in January 2019, just one week after Ofgem banned it from taking on any new customers until it improved the standard of its customer service.

Just before its collapse, Economy Energy agreed to sell around 30,000 of its customers to E, but failed to notify Ofgem about it when the company stopped trading. Ofgem issued a provisional order to stop the transfer going ahead and the story took another unexpected turn when both Economy Energy and E were found guilty of having an anti-competitive agreement with one another, which meant neither would target each other's customers through face-to-face sales.

Both companies were fined hundreds of thousands of pounds by Ofgem for breaching competition laws.

The government’s energy price cap has even shouldered some of the blame.

The energy price cap

Introduced in 2018, the price cap was designed to help end what Theresa May, the then Prime Minister, labelled “rip-off energy prices”, the level of cap is reviewed and set by Ofgem every six months, to reflect market conditions and ensure those households on standard variable rate tariffs are getting the best possible deal.

The trouble is, energy suppliers were quick to exploit the price cap, meaning it’s not worked exactly as planned - no sooner had the level of the cap been announced and suppliers were pulling their cheapest deals and replacing them with tariffs priced around the level of the price cap. This saw the number of cheap energy deals - those that cost less than £1,000 per year - drop by 90% during 2018, falling from 77 at the start of the year to just eight by the end of it, and had the unexpected consequence of squeezing some smaller suppliers out of the market.

Although poor customer service seemed to be the catalyst for Extra Energy’s demise, Nick Read, Extra Energy’s chief executive, said in a statement that “substantial UK regulatory change with the introduction of the price cap” was also a reason it could no longer operate.

What energy suppliers have gone bust?

16 energy suppliers have gone bust since January 2018, here’s a list of those suppliers who have wound up over the last couple of years.

Supplier When did it cease trading? What happened next? Number of domestic customers
Future Energy January 2018 Green Star Energy appointed SoLR 10,000
Flow Energy May 2018 Acquired by Co-Operative Energy 130,000
Gen 4U July 2018 Octopus Energy appointed SoLR 500
Iresa July 2018 Octopus Energy appointed SoLR 95,000
Affect Energy August 2018 Acquired by Octopus Energy 20,000
Electraphase August 2018 Administration. All customers switched Under 100
Usio Energy October 2018 First Utility appointed SoLR 7,000
Snowdrop Energy October 2018 Transferring customers to Nabuh Energy 6,000
Extra Energy November 2018 Scottish Power appointed SoLR 108,000
Spark Energy November 2018 Ovo Energy appointed SoLR and acquired Spark Energy Ltd. operating group 290,000
One Select December 2018 Together Energy appointed SoLR 33,000
Economy Energy January 2019 Ovo Energy appointed SoLR 230,000
Our Power January 2019 Utilita appointed SoLR 38,000
Brilliant Energy March 2019 SSE appointed SoLR 17,000
Cardiff Energy March 2019 SSE appointed SoLR 815
Solarplicity August 2019 EDF appointed SoLR 7,500
Eversmart September 2019 Utilita appointed SoLR 29,000

Although it’s still relatively rare that a supplier goes bust, any suppliers that aren’t fully financially stable are at risk. Here’s what to do if your energy supplier goes bust.

What to do if your energy supplier goes bust

 

If your energy supplier goes bust there are safeguards in place to make sure that you’re not left without gas and electricity. Ofgem’s safety net means you’ll suffer no disruption to your supply if your provider ceases trading and the regulator will also choose a new supplier, known as a supplier of last resort (SoLR), to take on your contract.

If your supplier goes bust, the first thing you should do is take a meter reading and wait for Ofgem to appoint your SoLR. As soon as your new supplier contacts you, you should then run an energy price comparison to see if you can get a cheaper deal elsewhere - it’s unlikely your new supplier will have placed you on a competitive deal, so you should switch as soon as possible.

The good news is you won’t be tied into a deal with your SoLR, so you can switch at any time without incurring a penalty charge, even if you were tied into a deal with your previous supplier.

To make sure you’re not left in the dark if your supplier goes bust, let’s answer some frequently asked questions.

What if my energy supplier goes bust?

It’s unlikely that your energy supplier will go bust, but it’s worth knowing what to do should the worst ever happen.

Will my gas and electricity be cut off?

No. Ofgem’s safety net means you’ll automatically be moved to a new supplier, with no disruption to your service, and no need for you to do anything other than sit tight.

The only thing Ofgem suggests is that you take a meter reading when you find out your supplier has gone under, and then wait for your new supplier to get in touch with you.

Will I have to find a new supplier?

No. Ofgem will choose a new supplier. If an energy provider goes bust, Ofgem will put its contracts out to tender, and rival companies then bid for the business by offering the best deal.

Once a new supplier has been appointed, you will be moved on to a new contract and contacted within a few days.

Will my energy tariff change if my supplier goes bust?

Yes. Your old tariff will end and your new supplier will put you on to a ‘deemed’ contract – a specially arranged tariff that you haven’t chosen – which you can keep for as long as you need.

Will a ‘deemed’ contract make my energy bills more expensive?

Although Ofgem will negotiate with suppliers to get you the best possible deal, there is a chance your energy bills could increase. This could be because the new supplier charges higher prices to cover the cost of taking on more customers, especially as they’ll be taking them on without running the usual background credit checks. Any hike in prices would be made to reflect the higher risk involved.

Will I be able to switch supplier if my energy company goes bust?

Yes, but Ofgem advises you wait until you’re new supplier gets in touch regarding your deemed contract. When you are contacted, you should ask to be put on the cheapest deal, or shop around for a better deal. You won’t be charged any penalty fees (also known as exit fees) if and when you make the switch.

If you were already in the process of switching when your supplier went bust, you’ll still be moved to the new supplier.

What happens to my credit if energy supplier goes bust

If you were in-credit with your old provider, Ofgem will look to appoint a new supplier that will pay back any money owed to you, possibly in the form of credit on your new account.

Similarly, if you are in debt, this may be taken on by your new provider, or you may have to continue to pay it back to your old supplier through the administrator.

Will I need to cancel my direct debit?

No, you won’t need to cancel your direct debit. No more money will be taken from your account so long as you didn’t owe any money to your previous supplier.

If you’ve already cancelled your direct debit, your new supplier will be in touch about setting up a new account.

What if I’m on a prepayment meter and my energy supplier goes bust?

Prepayment meter users are fully covered by the Ofgem safety net. If you’ve got credit on your key, card or token, you’ll be able to use it on your new account. If you need more credit, contact your new supplier to find out what you need to do, and if you’ll need any additional equipment.

How will I be contacted if I move home?

Your new supplier, your old supplier, or its appointed administrator, will all contact you at your old home address, so you should make sure your mail is redirected.

Is it safe to switch to a smaller supplier?

Energy isn’t all about the Big Six gas and electricity suppliers anymore – although the major providers still supplying 91% of UK homes with gas and electricity, the growing number of smaller, ‘independent’ energy companies mean there’s more choice than ever before.

To put that into some context, if you’d been looking to switch energy in 2006, you’d have had about ten suppliers to choose from, just over ten years later and there are 40 companies who could power your home.

And that much choice can only be a good thing for you as a consumer and us as a comparison service – more energy companies means more competitive prices and more innovative tariffs – but there will inevitably be a nagging doubt that a smaller supplier could go bust, a concern that will push many back into the arms of one of the Big Six.

But don't let that put you off. In the main, smaller suppliers often offer cheaper prices than the Big Six, with some also offering better levels of customer service - a bit of research and an energy price comparison is the key to finding the right deal with the right supplier.

How to switch energy supplier

 

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