Utility Week

UTILITY WEEK | 31ST AUGUST - 6TH SEPTEMBER 2018 | 7 News had the resources and capacity to look aer its customers. One message for the new, challenger energy providers is that unsustainable growth isn't just a headache or "a nice prob- lem to have" – it can be fatal. By investing in the best systems, people and processes at the start, a smaller company can give itself the best possible chance of sustainable growth. That's good news for the company, consum- ers and the energy sector as a whole. Money can't buy you love Ofgem has said it is looking at the process for new entrants to the market. We think that's welcome. The record levels of switching we're currently witnessing show that new entrants have brought competition and inno- vation to the market, but low prices some- times present hidden risks for consumers. A race to the bottom on price isn't good if it leaves consumers (and other suppliers) fac- ing hidden risks and hidden costs. The supplier of last resort mechanism is an essential protection. We are work- ing closely with Octopus to share our data, insights and expertise; just as we did with Green Star Energy and Co-Operative Energy following the collapses of Future Energy and GB Energy. It's right, however, that in the light of Iresa's demise questions are asked around the right balance of risk and reward to make sure consumers aren't lost in the blizzard of deals and price competition. Lower bills don't always mean higher confidence. Matthew Vickers, chief executive and chief ombudsman designate, Ombudsman Services Company "Protection for one group of customers must not come at the cost of a blank cheque from all others" T here is a scene in Ocean's Eleven where George Clooney's character explains how casinos need to have enough money in their vaults to cover every bet on the table. It ensures that, in the highly unlikely event that the house loses every bet placed, the casino can honour its losses. In contrast to Vegas casinos, energy suppliers don't currently have to honour their bets – particularly their customers' credit balances – should they fail. Instead, the cost of supplier failure is spread across the whole industry via the supplier of last resort levy. GB Energy's collapse, for example, cost the industry more than £14 million. While such protection is good news for those customers impacted, it's less good for the customers of all other suppliers, because they ultimately foot the bill. In effect, the actions of less robust suppliers are insured by the customers of more respon- sible providers – who, inciden- tally, typically have a higher number of vulnerable or lower income customers. And it's not just credit bal- ances that impose a cost on the market; on some occasions, unhedged energy positions, the result of the new supplier being unable to honour the failed supplier's (oen loss-making) tariffs, have also been claimed against the supplier of last resort levy. To be clear, we want to see competition, innovation and different business models – that is what delivers a better experience for customers on the whole. And it's okay for com- panies to fail, that's the nature of a competitive market. But it can't be right that consumers ultimately underwrite the debts of those failures – especially when they've not even chosen such suppliers. Ofgem has committed to looking at its rules on market entry and exit later this summer, following calls from Citizens Advice, Martin Lewis, and many other groups. This is welcome. Protection for one group of customers must not come at the cost of a blank cheque from all others. As part of this review, First Utility will be proposing that all suppliers should post a bond to insure the excess credit balances of their customers should they fail. It's not overly onerous on small suppliers, so shouldn't stifle competition, but it doesn't punish others for failure and should also ensure more finan- cial prudence. In fact, a bond – either a let- ter of credit or insurance against a failure – was a feature of the retail market in the UK until 2001 when Ofgem removed its requirement as it couldn't fore- see a situation when it would be used. Clearly the market has changed considerably since then so it's time for a review. Such measures would also have a self-regulating effect because suppliers would be more accountable to the organi- sation supplying a bond, forcing greater fiscal responsibility, more robust and sustainable business models (which should lead to better customer service) and reducing the chance of failure in the first place. Ofgem's "safety net" has once again kicked swily into gear to rightly protect Iresa's customers. But with this safety net being used three times in just over two years, it is now timely to debate how best this protection should be funded. Opinion Colin Crooks Chief executive, First Utility This year so far… • Iresa ceased trading on 27 July and its 90,000 customers were taken on by Octopus Energy . • Non-domestic provider Na- tional Gas and Power (NGP) had its supply licence revoked by Ofgem because it was unable to pay debts of more than £200,000. It ceased trading on 26 July, with around 80 customers being taken on by Hudson Energy. • On 3 August speculation surfaced about the finan- cial viability of small-scale energy provider Gen4U, according to a default circular issued by Elexon. • On 8 August, council- owned energy firm Victory Energy was scrapped by Portsmouth Council before becoming operational, having cost at least £2.5 million. • The Npower and SSE's merger is ongoing after SSE shareholders voted in favour in July. • Flow Energy was bought by Co-op Energy in May, although it will continue to operate as a separate brand. • Future Energy stopped trading in January. Customers were moved to Green Star Energy. Co-Operative First Utility Ovo Utilita Utility Warehouse Green Star Energy 7,000 6,000 5,000 4,000 3,000 2,000 1,000 0 COMPLAINTS RECEIVED BY MEDIUM-SIZED SUPPLIERS PER 100,000 CUSTOMER ACCOUNTS Complaints received per 100,000 accounts Q1 2014 Q2 2014 Q3 2014 Q4 2014 Q1 2015 Q2 2015 Q3 2015 Q4 2015 Q1 2016 Q2 2016 Q3 2016 Q4 2016 Q1 2017 Q2 2017 Q3 2017 Q4 2017 Q1 2018 Source: Ofgem

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