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Should you take a chance on cheap new energy firms?

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Written by: Paloma Kubiak
25/01/2018
Small energy provider Future Energy has ceased trading, leaving 10,000 customers forced to switch provider. Given the explosion of new energy suppliers on the market, should you trust them?

Regional energy supplier Future Energy today announced it has stopped trading. The group had 10,000 customers, mainly in the North East and Yorkshire.

It’s now the third energy supplier to have entered administration since 2008, according to energy regulator, Ofgem. The most recent was in November 2016 when 160,000 GB Energy customers were informed it had stopped trading, hit by increased wholesale costs. These customers were moved to Co-operative Energy.

However, the number of failures is small relative to the number of new energy providers seeking licences to supply UK households.

In 2015, Ofgem awarded 42 gas supply licences and 31 electricity licences, while in 2016, gas licence awards were given to 39 suppliers while for electricity, it rose to 41.

While new entrants to the energy market should be positive for consumers, leading to greater price competition in a sector monopolised by the ‘Big Six’ –  British Gas, EDF, E.ON, Npower, Scottish Power and SSE, many people may be concerned about the longevity and untested service of a new supplier.

Stephen Murray, energy expert at MoneySuperMarket, says that while some consumers will always prefer to go with a company they know and recognise, there are lots of new suppliers doing very well in the market.

“Events such as Future Energy ceasing to trade shouldn’t deter people from switching. Consumers just have to consider their options before making an informed decision.

“An event such as this confirms that consumers can have full confidence in the way the energy market is regulated and managed. It is important that consumers can interact with the market, secure in the knowledge that their interests will always be looked after.”

Peter Earl, head of energy at Comparethemarket, says some smaller suppliers can be at greater risk of financial problems, so it’s important switchers do their due diligence when considering switching to a smaller provider.

“One possible indication of a company’s health is its customer rating value, which you will find on most comparison sites including our own. The closure of Future Energy should not put people off switching their energy provider for two good reasons. Firstly, switching is by a long way the best means of saving hundreds of pounds on your energy bill, and secondly, the energy regulator Ofgem will not allow the collapse of a company to negatively impact its customers, as is the case with Future Energy.”

Claire Osborne, energy expert at comparison site uSwitch, adds that the standards of service provided by smaller suppliers can vary significantly; while some beat large suppliers on customer service, others leave much to be desired.

“It is also worth noting that you should consider more than the headline price when comparing energy suppliers – checking the length of your fixed rate deal or the exit fee the supplier may charge if you decide to leave before that deals ends to make sure you get the best deal possible from the supplier you choose.”

New supplier licence checks

When granting a new supplier licence, Ofgem carries out a number of checks, such as requesting details of the company’s ownership structure and checking if any of the directors involved have been disqualified.

It also undertakes verification checks on the information provided, the applicant and/or holding company and considers how the applicant will commence supply.

There are also further checks and requirements under the industry codes that must be met before a company can enter the market, Ofgem says.

Ofgem is also considering the timing of a wider review of its approach to awarding supply licences, the financial requirements on suppliers and how it monitors performance, as a result of the increased number of small energy suppliers and rising wholesale prices.

Ofgem says: “We have had many representations from those who consider we should require companies to meet more significant financial tests both before and after receiving a licence.

“We are conscious also of the benefits that consumers derive from the competition that new entrants can bring.

“It’s right that we look at this as a prudent regulator. But it’s possible that we will not make any changes following this review.”

Your rights if things go wrong

As part of the regulator’s safety net for customers should things go wrong, if an energy company goes bust you’ll continue to have an energy supply and your credit balance will be protected.

If your energy company does go into administration, it’s important to note down meter readings ready for when a new energy company is appointed to supply your property. This is Ofgem’s key messaging for Future Energy customers.

Once a new supplier’s been found, your old tariff ends and you’ll be put on a new contract with the new supplier – though it could be more expensive than the existing deal you were on. However, you can switch at any time.

Not happy? How to complain about your energy provider

Away from administration rights, if you have a complaint about your new energy supplier you should raise it with the firm in the first instance, explaining what the problem is and how you would like it to be resolved.

Gas and electricity suppliers have to adhere to a complaints handling code of conduct which means they have up to eight weeks to deal with your complaint.

If you’re not happy with the response or get no response, you should take your complaint to the Energy Ombudsman.

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