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Energy customers to foot £2.7bn supplier failure bill

Paloma Kubiak
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Paloma Kubiak

Energy bills are set to rise by £94 per household to pay for the cost of moving customers from the 28 energy suppliers that have collapsed since June 2021, the National Audit Office has said.

A damning report by the independent body blamed the energy regulator, Ofgem, for licensing new suppliers without ensuring they were financially stable or able to cope with a sustained rise in wholesale energy prices.

Consequently all energy customers will have to foot the bill which Ofgem estimates will hit £2.7bn, though it admits that number could be considerably higher.

Gareth Davies, head of the NAO, said while Ofgem and the Department for Business, Energy and Industrial Strategy had ensured the vast majority of consumers faced no disruption to their energy supply when their provider failed, the regulator was ultimately responsible for the fiasco.

He said: “By allowing so many suppliers with weak finances to enter the market, and by failing to imagine that there could be a long period of volatility in energy prices, Ofgem allowed a market to develop that was vulnerable to large-scale shocks.

“Consumers have borne the brunt of supplier failures at a time when many households are already under significant financial strain having seen their bills go up to record levels. A supplier market must be developed that truly works for consumers.”

Citizens Advice estimates that transferring has cost the average customer £30 more per month for the duration of their original contract because many were moved to a higher tariff.

Some customers have also faced other challenges such as the loss of debt repayment plans, affecting vulnerable households disproportionately.

Energy bills have risen 78% since 2019, while the wholesale price of gas ballooned nearly six-fold from February to December 2021.

Almost 2.4 million customers have had to be transferred to another supplier after seeing their own provider go bust as a result.

The NAO report also noted that during 2021/22 the government spent £900m on an administrator to run Bulb Energy and has budgeted an additional £1bn to run it during 2022/23.

The overall costs of supporting Bulb Energy will not be known until the government sells it, or it exits special administration by other means.

‘Regimes were not robust enough’

Earlier this week Ofgem published plans to implement “tough new measures” designed to improve the financial health of energy suppliers so they can stand up to future shocks in the energy market.

A spokesperson, said: “While the once-in-a-generation global energy price shock would have resulted in market exits under any regulatory framework, we’ve already been clear that suppliers’ and Ofgem’s financial resilience regimes were not robust enough.

“While no regulator can, or should, guarantee companies will not fail in the future, we will continue to take a whole-market approach to further strengthen the regulatory regime, ensuring a fair and robust market for consumers which keeps costs fair as we move away from fossils fuels and towards affordable, green, home-grown energy.”