Consumers pay the price when suppliers go bust

There is no doubt about it, the GB energy retail market is going through a period of immense change.

It wasn’t long ago that the supplier boom was lauded as evidence of a successful energy market; driving costs down, encouraging suppliers to fight for customers, and ultimately giving consumers control over who supplies their energy. New technology and low barriers to entry enabled this to happen. While this boom brought with it some new innovative suppliers, it also opened the floodgates to irresponsible ones who don’t put their customers first.

A snapshot of the market shows the breadth of suppliers, providing hugely varying levels of customer service as well as value for money – and, despite the received wisdom, it’s not as simple as ‘big is bad and small is good’. This is demonstrated in Citizens Advice’s latest service league table, led by SSE – a larger, established company. Supplier performance is rated across five key measures: complaints, billing, customer service, switching and customer guarantees. All 11 suppliers that have gone bust over the past 18 months scored poorly (less than 2.5 out of five) or didn’t even provide enough data to be assessed in the first place.

A staggering 925,000 households have been affected by failed suppliers in the last couple of years.  While these customers have been protected by Ofgem’s ‘supplier of last resort’ safety net, when suppliers crash out of the market the cost of their failure is passed on to other energy suppliers and, ultimately, their customers.

It is only right there should be robust checks and standards applied to companies who want to provide an essential service to customers and we welcome the steps Ofgem has now taken to tighten its criteria. It’s been too easy to set up as an energy company – often in the form of ‘supplier in a box’ setups purchased from licence factories. As a result, many without proper funding or infrastructure have emerged, only to go bust down the line after taking a punt on offering ever lower and more unsustainable prices to attract customers.

Last month Citizens Advice published its review of recent supplier failures which found that failed suppliers were offering tariffs up to £220 cheaper than the market average. It pointed out that consumers then lose out with problems like disputes over incorrect bills left unresolved after their supplier has gone bust.

Earlier this week, Which? complained these customers ended up paying more when being transferred to a new supplier, including SSE in the case of Brilliant Energy customers. But they missed the key point: the reason the previous supplier no longer exists is that it was selling energy at a loss, which couldn’t be sustained. Under the price cap, standard prices are set based on an objective, bottom-up methodology that allows solely for the real underlying costs of supplying energy, with only the most efficient suppliers able to make a profit margin of less than 2%. It’s wrong to call this a ‘rip-off’. We have to move beyond the myopic focus on the cheapest price as this forces a race to the bottom and ignores the need for energy businesses to be run responsibly and offer quality customer service to all customers, including the vulnerable.

For too long customers have been left unprotected from irresponsible suppliers. New companies will now have to prove they are properly capable of operating in the market before they are allowed to do so. However, there is still more to do to increase ongoing monitoring and make sure unpaid bills by irresponsible suppliers don’t get picked up by consumers.

Yes, these new rules are a step in the right direction, but we hope the recent wild west of rogue energy suppliers hasn’t put consumers off trusting reputable companies in the market. Ofgem’s new rules have come not a minute too soon. With these changes we hope to see a step-change in standards as customer service becomes the central focus across the industry.