Household bills to see £2.7bn rise to cover for energy suppliers going bust

The National Audit Office (NAO) has said that, while the failures were caused by massive changes in the energy market, regulator Ofgem is also partly to blame.

The watchdog’s approach to how it licensed and monitored suppliers over much of the last decade increased the risk of them failing, but also added to costs when they did, the NAO found.

Ofgem’s processes have been good at ensuring that households do not have their energy cut off when a supplier fails.

It fixes this through the so-called supplier of last resort system which asks a rival company to take over the supply of energy to those households.

Many energy suppliers have gone bust in the UK in the last year (PA) (Image: PA)

But the system has many potential pitfalls. For instance, customers will often be moved to a more expensive deal with their new supplier – Citizens Advice estimates it adds about £30 per month to bills for the average customer.

Some customers will also be taken off their debt-repayment plans, which hits the most vulnerable hardest.

However, the main problem comes with the cost of transferring customers as it is spread over all households in the UK, rather than just the failed supplier.

It will cost households a combined £2.7 billion to cover the transfer of 2.4 million customers to a new supplier – around £94 each – Ofgem estimates.

This is before taking into account the potentially multi-billion charge that households could face due to the collapse of Bulb Energy.

The Department for Business, Energy and Industrial Strategy (BEIS) has set aside £1.9 billion so far to run the energy company in administration. It was considered too big to allow it to fail.

This cost could be passed on to bill-payers.

Head of the NAO Gareth Davies said: “Ofgem and BEIS ensured that the vast majority of consumers faced no disruption to their energy supply when their provider failed.”

The cost of transferring people onto new energy suppliers will be passed onto all UK households (PA)

But he criticised close to a decade of lax regulation of energy companies.

New rules for new suppliers will change this, but those rules only came into force in 2019, and it was not until 2021 that they were implemented for existing suppliers.

What was Ofgem's response to this?

Ofgem said it accepted the NAO’s findings, and is working to fix the problems raised.

“While the once-in-a-generation global energy price shock would have resulted in market exits under any regulatory framework, we’ve already been clear that suppliers and Ofgem’s financial resilience regime were not robust enough,” it said.

“While no regulator can, or should, guarantee companies will not fail in the future, we will continue to take a whole-market approach to further strengthen the regulatory regime, ensuring a fair and robust market for consumers which keeps costs fair as we move away from fossil fuels and towards affordable, green, home-grown energy.”

The Government pointed out the report’s endorsement of its steps to ensure that customers were not cut off. It said it would consider the NAO’s recommendations.