Utility Week

UTILITY WEEK | 16TH - 22ND NOVEMBER 2018 | 7 News bill for the shortfall over the short term through lower than expected returns from the buyout fund. Managing cash flow is already challeng- ing and this could be highly disruptive. They will also have to pay into the mutualisation fund several months before they get any- thing back, exacerbating the issue. For this reason, Utility Week understands several suppliers are considering taking legal action against Ofgem if the mutualisation process is activated. Second, failed suppliers will obviously be unable to pay into the mutualisation fund. Any part of the shortfall for which they are responsible will therefore be spread across the industry. Other suppliers would be burdened with this cost regardless of whether mutualisation is triggered. But Thomson says this ties into a wider issue about who pays for failures – one that has already been highlighted within the context of the supplier of last resort procedure. "We've effectively allowed the suppliers to use the money from customers to fund their future activities so they can run at a considerable loss for quite a while before they actually get stuck," he explains. Third, there is the question of what happens to suppliers that have neither met their obligation nor failed. Close to the edge? Thomson says the 1 September 2019 deadline for the first mutualisation payment "might be far enough away to allow the better run com- panies to manage the process. However, I'm aware of a few companies that seem to be quite close to the edge, and if we got a bad winter, I don't think they would necessarily survive". He says there are concerns in the industry over how Ofgem will respond to the situa- tion: "Ultimately, what are its options? Does it have to put a winding up petition in place to get them to pay? "Does it put fines in place if they aren't able to pay the money? Is that going to make any difference? Or is the reality that these companies are not sustainable and won't be able to pay that money?" The lack of a precedent means the indus- try is now heading into uncharted territory. It will be up to Ofgem to guide the way forward and clear up some of the uncertainties. However the issue is resolved, the fact the shortfall is so large compared with previous years is a sign that all is not well in parts of the retail sector. It may not be long before more suppliers have bailiffs at the door. "I'm aware of a few companies that seem to be quite close to the edge, and if we got a bad winter, I don't think they would necessarily survive." Ryan Thomson, Baringa Partners "If [suppliers] have been unable to pay this year's ROCs bill it also means they will have a difficult time paying next year's bill." Anonymous OBLIGATIONS AND TOTAL BUYOUT PAYMENTS FOR EACH RO SCHEME Source: Ofgem Obligation Total obligation (ROCs) ROCs presented by suppliers Percentage of obligation Buy-out payments Buy-out redistributed met by ROCs made by suppliers (rounded to nearest pound) England & Wales (RO) 105,683,001 92,054,861 87.1% £526,038,495 £524,074,398 Scotland (ROS) 10,838,475 10,100,262 93.2% £26,693,512 £24,746,854 Northern Ireland (NIRO) 1,320,647 1,065,756 80.7% £10,801,229 £10,724,439 Total 117,842,123 103,220,879 87.6% £563,533,237 £559,545,691 Note: figures do not include late payments ELECTRICITY PRICES: DAY-AHEAD BASELOAD CONTRACTS, MONTHLY AVERAGE (GB) Source: Ofgem 75 70 65 60 55 50 45 GB £/megawatt-hour 1 January 1 February 1 March 1 April 1 May 1 June 1 July 1 August

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