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Another small energy firm goes bust: should you be fleeing the ‘Big Six’?

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Written by: Paloma Kubiak
16/10/2018
Thousands of customers have been left in limbo after Usio Energy became the latest small supplier to collapse into administration.

Usio Energy supplied around 7,000 customers before it ceased trading yesterday.

While energy regulator, Ofgem, was quick to reassure customers that their energy supply would continue as normal and outstanding credit balances would be protected, the news raises serious concerns regarding these newer providers.

This year alone three small energy companies have gone bust: Future Energy in January which served 10,000 customers, Iresa Energy in July with nearly 100,000 customers and now Usio with its 7,000 customers.

Since 2008, five energy firms have collapsed, including Gen4u, and GB Energy.

There are now more than 60 suppliers in the market, up from less than a dozen a decade ago, and these smaller energy providers have been credited with opening up competition in the energy space, leading to better deals for customers and much-improved switching rates.

Just last week, research by Ofgem revealed that smaller challengers now have a 25% market share, up from 1% just ten years ago. As such, energy giants’ market share is at a record low and annual profits of the ‘Big Six’ – British Gas, EDF, E.ON, Npower, ScottishPower and SSE – have fallen (10% to £900m) for the first time since 2014.

With wholesale energy costs rising, the question for consumers is whether these smaller firms are worth the risk?

Cheaper tariffs

The big attraction of these smaller firms is the cheaper tariffs they offer. According to uSwitch figures, the average standard variable rate (SVR) tariff from the ‘Big Six’ is £1,221 a year, whereas the cheapest SVR tariff is £921 from Pure Planet, a difference of £300.

Energy licence application checks

Regulator Ofgem, which is responsible for granting licences to firms hoping to grab a share of the UK energy market, plans to review the current supply licensing arrangements with a consultation launching next month.

But Ofgem says it has “extremely robust procedures in place” to make sure energy suppliers are secure and customers’ credit balances remain protected.

It added that applicants have to go through a “rigorous process to enter the market” and it carries out a number of checks before issuing a licence. These include getting details of the company’s ownership structure, checking if any directors have been disqualified or have been involved in criminal activity, as well as carrying out verification checks.

A spokesperson said: “One of the things we will be looking at is whether we should apply stricter criteria to suppliers wanting to come into the market. If a supplier does fail, Ofgem’s safety net will protect customers.”

A spokesperson from trade body Energy UK, said: “It is a challenging retail market for suppliers of all sizes, particularly when input costs like wholesale prices have risen significantly over the last year. It’s important there are robust checks in place for new entrants to ensure consumers stay protected from business models that are not sustainable.”

What to do if your firm goes bust

If an energy firm goes bust, Ofgem will choose a new supplier to take on customers of the failed company.

Customers are urged to sit tight and take a meter reading, but not switch until a new supplier has been found.

There is a chance customers will be switched to a more expensive tariff with the new provider but they can switch again without being charged exit fees.

Ofgem explained that the new supplier will put customers onto a ‘deemed’ contract (one they haven’t chosen) which can be more expensive as the supplier takes on more risk by having to buy more wholesale energy at short notice.

Still unsure about smaller suppliers?

Energy UK said customers who have any concerns about switching should look for suppliers signed up to the Energy Switch Guarantee, a voluntary industry initiative where signatories commit to making the process simple, speedy, and safe.

Energy expert Rik Smith from price comparison site uSwitch.com, said competition in the market remains healthy, with plenty of options with reliable suppliers for households to switch to and secure a better deal.

But customers can also compare tariffs in other ways, not just be led on price. uSwitch carries out an annual customer service review for those wanting to know more about a potential supplier.

Related: See YourMoney.com’s A guide to switching energy provider for more information.

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