Utility Week

16 | 2ND - 8TH NOVEMBER 2018 | UTILITY WEEK Finance & Investment I t could be a bleak winter for some of the small and mid-tier challenger brands in t he energy retail space. This year has already seen the demise of brands of all shapes and sizes, all of which claimed to offer something different to their customers – but all those customers are now with a dif- ferent supplier. And we could see yet more suppliers exit the market before this year is up because some are showing signs that they are starting to feel the pinch. In recent years there has been a flood of new entrants – customers have never had so much choice. But choice is clearly not solv- ing all the problems in the market, hence measures such as the price cap. As Ofgem chief executive Dermot Nolan pointed out at Utility Week's Congress 2018 event in Birmingham last month (October): "In the utilities sector, trust and confidence have not been as high as we would have liked in the past few years." With a flurry of suppliers failed already, it could be a while before customers' faith in the market is restored. No consumers will be le without an electricity or gas supply when a company goes bust, but it doesn't create a good impression when customers are suddenly transferred over to a supplier they didn't choose because the one they did choose went bust. Ofgem is currently reviewing the supplier licensing regime and could soon toughen up rules for new entrants, aer critics have claimed it is too easy for new suppliers to enter the market without the correct pro- cesses in place. The regulator is also considering its approach to supplier failure and its safety net process. Ofgem published revised guid- ance on the criteria it would consider when selecting a supplier of last resort (SoLR) back in 2016. Since then there have been sev- eral instances of supplier failure that have required Ofgem's intervention. The first was in November 2016 when Co-op Energy took on 160,000 customers from GB Energy Supply when the small sup- plier ran into trouble. It was then used at the end of January 2018 when Green Star Energy was appointed to take on the 10,000 customers of failed supplier Future Energy. This year has also seen the collapse of Iresa Energy – its 90,000 customers were transferred to Octopus Energy aer Octopus was chosen as SoLR at the end of July. Octo- pus also rescued approximately 500 custom- ers from Gen4U when the small-scale energy provider shut up shop in September because of financial difficulties. Meanwhile, non-domestic provider National Gas and Power (NGP) had its sup- ply licence revoked by Ofgem in July aer the company was unable to pay debts of more than £200,000. NGP's 80 business customers were trans- ferred to Hudson Energy (which trades as Green Star in the domestic market). Usio joins the fallen Last month came the news of Usio Energy's collapse. Usio was granted its supply licence in 2016 but only became active in the market in the second half of last year. Its aim may have been to gain 4 per cent of the market by 2020, but the 7,000 customers it did manage to attract were transferred to First Utility, a now wholly-owned subsidiary of Shell. Shell's former vice- president for down- stream strategy and portfolio, Colin Crooks, was appointed chief executive of First Utility earlier this year aer the oil giant completed the purchase of the energy retailer. First Utility was selected as the SoLR for Usio's customers aer a competitive tender process. Ofgem is expected shortly to publish details setting out its reasons for appointing the company. A spokesperson for Ofgem said: "We were pleased that a number of suppliers took part in the competitive process to be appointed the supplier of last resort for Usio's custom- ers. First Utility, who we appointed, is offer- ing Usio Energy's customers a competitive tariff and will honour all outstanding credit balances, including money owed to both existing customers and former customers of Usio Energy. "In the coming weeks we will publish a letter setting out, in greater detail, the rea- sons for our decision." The cost of protecting customers' credit balances will be partly met by First Utility, and the rest will be covered by a safety net put in place by Ofgem. This is funded by a levy spread across all energy suppliers. Crooks said First Utility was very pleased to be able to "step in and help those custom- ers" who had been let down by the failure of Usio. The company's demise prompted predic- tions that other small suppliers could fol- low them out the door, and just days later Utility Week revealed that Snowdrop Energy had transferred all of its customers to fellow Sheffield-based supplier Nabuh Energy. Snowdrop said on its website that the "continued increase in wholesale market prices" had put pressure on its business, which sparked the decision to "protect" its customers through winter. "We have taken the decision to exercise Testing times for small suppliers A spate of small suppliers going bust testifies to the toughness of the energy retail market, and many industry experts expect a further clear out after the winter. Katey Pigden reports. Analysis "Given the changes in the retail market since then, we consider it is timely to review the current supply licensing arrangements to make sure protections against financial instability and poor customer service are adequate." OFGEM SPOKESPERSON

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