Failed energy firms add £2.4bn to household bills

In evidence to the Business, Energy and Industrial Strategy (BEIS) Committee’s investigation into the energy market, the regulator revealed that suppliers who took on customers from companies that went bust will be able to claim their costs back.

Ofgem expects them to claw back between £2.2-£2.4billion under its supplier-of-last-resort regime. The scheme lets providers recoup that money by raising consumers’ bills. It works out to around £94 extra per household.

The watchdog added that for suppliers that took on the customers of failed companies, around 85 percent of the costs they want to claim back stem from having to buy wholesale energy to cover for their enlarged client base.

Wholesale energy prices started rocketing last year and have since been sent even higher by the conflict in Ukraine.

“We need to move to a world where the costs of failures are not fully borne by energy bill payers,” said Gillian Cooper, the head of energy policy at Citizens Advice.

She added that the cost of the energy market failures could be higher, as it does not account for Bulb Energy, which was the UK’s seventh largest supplier when it failed in November.

Bulb was placed into special administration with restructuring experts from consultant Teneo placed in charge of running it.

However, as Teneo is banned from buying wholesale gas at hedged prices, BEIS committee chairman Darren Jones fears the cost of rescuing Bulb will be at least £1.3billion more than the original £1.7billion estimate.

Experts say that many of the suppliers that failed did not insure themselves against the possibility of higher wholesale prices adequately.

Earlier this week, soaring wholesale prices were blamed by Scottish Power for its decision to withdraw from the industrial and commercial energy supply market.