Ministers under fire as energy retailers rescue package put on ice

UK energy updates

The head of one of the UK’s challenger retail energy providers has hit out at the government for failing to stem the collapse of a growing number of suppliers, as fears in the industry grow that a rescue package has been put on ice.

Peter McGirr, founder and CEO of Green, said in a letter sent to customers after the energy supplier collapsed this week that regulator Ofgem and the government had created a “regulatory environment” that caused the failures as wholesale energy prices surged to record levels.

The majority of energy suppliers are now lossmaking as wholesale costs have risen far above the UK’s price cap for household electricity and heating, raising fears over how large numbers of orphaned customers can be smoothly transferred to surviving providers.

McGirr said in his letter that Green together with 14 other suppliers had approached the government on Monday for help.

“We wrote to Ofgem, the prime minister, the business secretary, and the chancellor of the exchequer . . . asking for the energy price cap methodology to be reviewed and for an immediate support package to be assembled,” McGirr said.

The Green founder expressed concern that larger energy providers could also fail. “If the costs of any supplier failures are mutualised, this would also add to the pressure on suppliers remaining in the market,” he said.

Kwasi Kwarteng, the business secretary, has been in talks with the Treasury about providing state-backed loans to bigger energy companies to persuade them to take on the customers of failed suppliers.

But the business secretary signalled on Wednesday that he wanted the sector to resolve the problem without external assistance.

Allies said Kwarteng had become increasingly convinced the industry could weather the crisis without state loans. As a result no announcement is expected soon on how any potential lending scheme might work.

The business secretary has not abandoned the idea altogether. Instead he is hoping most of the failed companies will be dealt with under the existing “supplier of last resort” system, under which their customers are transferred to other companies. Where that proves unviable, the government has the power to appoint a special administrator. 

But retail energy suppliers are concerned over what they see as a denial of the scale of the problem, with almost 1.5m customers having lost their suppliers in recent weeks.

The cost of providing the average household with gas and electricity for a year was calculated this week to be more than £550 above the level of the £1,277 price cap, so absorbing large numbers of customers could be severely lossmaking.

Ed Miliband, the shadow business secretary and former leader of the Labour party, on Thursday released a letter sent by Ofgem last year that warned Kwarteng about the dangers of supplier failures.

In the letter, Ofgem chief executive Jonathan Brearley said there were dangers to consumers if a large number of suppliers failed in quick succession, including some households potentially being cut off.

“The impact on customers of significant supplier failures would be extensive and highly disruptive — with the risk that some customers could lose supply,” Brearley wrote in March 2020.

Ofgem has repeatedly said this month that household supplies are not at risk should providers fold.

The regulator reiterated its stance after the 2020 letter’s release on Thursday, saying it was “confident that the systems we have in place will mean there is no risk of customers losing their power supply”.

“This letter was sent at the height of the Covid crisis and the content relates to the impact of Covid on energy suppliers,” Ofgem said.

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