Domestic market - several businesses collapse

As more suppliers stop trading, Ofgem reviews conditions for market entry and ongoing business operations for suppliers.
Since Summer 2018, several electricity and gas suppliers (mostly domestic) have stopped trading. This has triggered the Supplier of Last Resort (SoLR) process, enabling Ofgem to assign their customers to another supplier.

The suppliers who are assigned the customers (by winning an ‘auction’ held by Ofgem) can claim any costs that they incur. These costs are recovered from end users through their transportation charges for gas and electricity, with increases occurring in the following charging year. Under the licence, it can take nine months for any claims to be lodged and decided upon, so it is possible that claims from July 2018 may still be approved. 

Cooperative Energy’s claim for the collapse of GB Energy Supply in November 2016 was not finalised until 16 months after the date of the SoLR, so some claims can be allowed more than 9 months after the event.

The following SoLR events have occurred since Summer 2018:
Date Company subject to SoLR SoLR awardee  Costs claimed from industry
July 2018 Iresa Octopus Energy  Yes. £13.2m (£5.92m gas, £7.23m electricity)
September 2018 GEN 4U Octopus Energy  Unknown, no claim to date
October 2018 USIO First Utility Yes. First Utility committed to the lowest amount
November 2018 Extra Energy Scottish Power Yes. ‘Partly by Scottish Power and partly by idustry levy’
November 2018 Spark Energy OVO Energy Yes. ‘Partly by OVO Energy and partly by industry levy’
December 2018 OneSelect Together Energy (Eddington Energy) Yes. ‘Partly by Together Energy and partly by industry levy’
January 2019 Economy Energy OVO Energy No. OVO committed to paying credit balances in full
January 2019 Our Power Utilitia No. Utilitia has agreed to paying all costs

Due to recent supplier collapses, Ofgem is reviewing the process for granting new supply licences. This is focussed on two areas:

Conditions for suppliers entering the market
New supplier applicants should be able to show they have:

  • an understanding of the costs and risks involved
  • adequate operational and financial resources to manage these
  • a plan to comply with their customer service related obligations

Ofgem is also proposing to licence suppliers closer to their planned market entry, so that new entrants have better information available to demonstrate how they meet the new assessment criteria.

Ongoing requirements, monitoring and engagement
Options include:

  • a requirement for active suppliers to report annually on their financial and operational adequacy, to increase ongoing focus on their resilience (including in relation to their key customer service obligations and Government schemes)
  • an ongoing ‘fit and proper’ requirement. 

You can read the review here.

You can read our latest regulatory report here