energy

ScottishPower breaks ranks on energy bailout calls

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Energy companies should not be “screaming for a bailout” from the UK government as the sector is in a better position to weather the coronavirus crisis than the “vast majority” of industries, according to one of Britain’s biggest power suppliers.

Keith Anderson, chief executive of ScottishPower, said bad debts arising from customers struggling to pay their bills during the pandemic could later be recovered via an existing mechanism that spreads the costs of missed payments among customers.

His comments come after trade body Energy UK approached the government about a loan scheme worth up to £100m a month to help utility companies offer payment holidays to customers in financial distress. 

Several energy providers including market leader Centrica have raised concerns about rising bad debts as customers start cancelling or reducing their payments, raising concerns of cash flow problems.

Analysts fear more energy companies will join the group of almost 20 that went bust in the fiercely competitive energy sector in the two and a half years before the outbreak of the virus.

But Mr Anderson told the Financial Times it was “very early days” and that the energy sector needed to assess the full scale of the problem before making “knee jerk” calls for bailouts.

He said bad debts that could not be recouped from customers once they were in a more financially stable position could ultimately be “mutualised” over a “period of time” via the mechanism introduced last year as part of the price cap

The price cap limits energy costs for an estimated 11m households on variable — rather than fixed — price tariffs who were vulnerable to sudden increases by suppliers.

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The level is calculated by Ofgem every six months and takes into account not just wholesale prices and suppliers’ operating costs but also factors such as the costs of bad debts and supporting renewable energy projects.

Mr Anderson also argued that any energy company hit by a cash crunch because of payment holidays could access the government support scheme introduced for all businesses last month to steer the economy through the Covid-19 crisis.

“We need to wait and see what is happening, wait and see what comes through the system, wait and see how customers react,” Mr Anderson said. 

“There’s been a few panic calls for action and immediate response . . . and I think we need to take our time and reflect.

“We are in a better place than the vast majority of other industries in this country . . . of any sector in this country asking for additional help, we should be at the back of the queue.”

The comments from the head of ScottishPower, part of the €58.6bn Spanish utility Iberdrola, are likely in particular to raise the hackles of smaller suppliers, which lack the financial security of their larger rivals.

People familiar with the intricacies of the price-cap mechanism said it would not necessarily be a straightforward process to raise the limit to offset a boom in unpaid bills.

Martin Young, utilities analyst at Investec, said such a plan would also land the burden of picking up the bill for bad debts with those 11m British households who choose not to shop around for cheaper fixed-price energy deals. 

“You’re not necessarily sharing it across everybody,” Mr Young said.

Energy UK said: “On behalf of the industry, we will continue to work with the government on options for how best to support the households and businesses who may be struggling to pay for essential services like their energy bills right now.”

 

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