British households face a potential bill of £172m to cover costs from the collapse of a number of smaller energy suppliers in the past 18 months.
A report by Citizens Advice, the charity, said consumers could be forced to pay extra for industry bills left unpaid by a bankrupt supplier — such as the levies utilities must pay to support the development of renewable energy generation and metering costs — which can be spread across other energy providers. They then pass the extra burden on to customers via their bills.
Citizens Advice estimates that the 11 smaller suppliers that have gone bust since January last year left behind unpaid industry bills of £172m. Among those to collapse were Spark Energy, which had 290,000 domestic customers, and Economy Energy, with 235,000.
Citizens Advice has also warned that some customers who owed money to failed suppliers had been subject to “aggressive” debt collection techniques from administrators.
When an energy company goes bankrupt, Ofgem, the energy market regulator, appoints a new supplier to take over its customers. Households in credit have their balances preserved, but administrators can chase customers that were in debt and do not have to abide by energy industry rules that ensure, for example, that a sustainable repayment plan is agreed.
The recent trend of supplier collapses has increased calls from larger energy companies for tighter regulation. Larger firms say many new, small entrants use unsustainable business practices to attract customers, offering unfeasibly low prices and not hedging sufficiently against large upswings in wholesale electricity and gas prices.
The number of domestic energy suppliers in Britain has boomed in the past decade, from 12 in 2010 to as many as 70 last year, amid a drive by regulators and politicians to encourage further competition in the market.
Ofgem, the energy market regulator, this year tightened up requirements for companies wishing to enter the market, including raising fees nearly fivefold, requiring businesses to show they have sufficient funds to trade for a year and increasing the checks on directors, major shareholders and senior managers.
But several big suppliers, including SSE, want the regulator to go further and impose greater checks on companies already operating.
Citizens Advice has suggested that suppliers be forced to make more frequent payments towards certain levies, such as those supporting renewable energy generation, to prevent the accumulation of large unpaid bills.
“Consumers shouldn’t have to foot the multimillion pound bill left behind when companies collapse — and they certainly shouldn’t lose their usual protections in the process,” said Gillian Guy, chief executive of Citizens Advice.
Philipp Pickford, Ofgem’s director for future retail markets, said the regulator is looking at ways “to reduce costs associated with supplier failure”.