https://ift.tt/Jw6QMIo Households To Cover £2.4bn Bill For Energy Firm Collapses – Cryptovibes.com – Daily Cryptocurrency and FX News

Payments to suppliers that took on customers of failed rivals could end up being funded by consumers, warns regulator.

As the energy watchdog warned the second wave of failures could be on the horizon, it told MPs that households could end up funding £2.4bn of payments to energy suppliers that took on the customers of rivals that collapsed as a result of sky-high gas prices.

Ofgem, in evidence to the business, energy, and industrial strategy (BEIS) select committee, detailed the costs associated with the “supplier of last resort” system, under which customers of an energy supplier that collapses are transferred to a healthier utility company.

Thirty energy suppliers have busted since the start of last year, affecting nearly 4.5 million customers, with a steep increase in gas prices in early winter leading to a spate of failures.

Suppliers of last resort have had to buy more energy on wholesale markets after they took on those customers, such as Shell and Octopus Energy, and can charge the cost of that to local gas and electricity distribution networks from April.

Those grid operators, in turn, will add the extra cost to what they charge suppliers to use their networks. Eventually, the households’ energy bills, which are predicted to soar to£3,000 a year or more, will be added, intensified by Russia’s invasion of Ukraine.

Ofgem said:

“While it is still subject to significant uncertainty, our current estimate for total claims is approximately £2.2bn-£2.4bn.”

Costs associated with the collapse of Bulb, whose operations rather than being transferred to another operator, were taken into government control under the “special administration” regime, are not included in the figure.

Due to the war in Ukraine, it also warned MPs to brace for renewed chaos in the energy markets – potentially leading to another round of failures.

“The volatility in the gas market is not over. Indeed, it looks likely that we are entering a second, more serious phase that will have further consequences for customers and further financial strain for retail companies.”

Since the first wave of energy supplier collapses, Ofgem said that it was forced to rethink its manner of regulating the industry, which was likely to mean more stern regulation of companies. However, it may also spell more frequent bill increases.

The regulator said that there was a lack of resilience among companies, many of which did not hedge against high wholesale gas prices, and financial regulation needed to be significantly enhanced to ensure that they were, including a tougher stress testing regime.

The energy price cap, which was meant to ensure customers were not charged unfair prices, needs to adapt to rapidly changing market prices. Ofgem can reopen the price cap in “exceptional circumstances” from April 1, and it is considering quarterly reviews.

Currently, the cap is reviewed every six months, with an increase of £693 to reach £1,971 was allowed in the most recent review in April. Predictions that the cap could increase to beyond £3,000 when the next one is announced in October have been sparked by persistent high gas prices due to the Ukraine crisis.

Members of the committee were informed by Gillian Cooper, the head of energy policy at Citizens Advice, that households should not bear the full cost of further energy company failures.

She said:

“We need to move to a world where the costs of failures are not fully borne by energy bill payers. We have estimated that the costs of all these energy supplier failures are going to cost in excess of £2.4bn. That is about £94 per household. And that does not include the cost of the failure of Bulb, which is being treated separately under the special administration regime.”