Utility Week

12 | 1ST - 7TH NOVEMBER 2019 | UTILITY WEEK Policy & Regulation Analysis F ollowing last year's debacle with the Renewables Obligation scheme, calls for monthly payments from as high up as the regulator itself are gaining traction. Once again the energy retail market has seen a challenger supplier exit and once again the market is proving to be an increasingly diffi- cult environment in which to survive. With Toto Energy becoming the eighth supplier of 2019 to bow out and Ofgem's proposals to tighten up the rules surround- ing mutualisation payments and introduce financial health checks, there is certainly a lot to think about. On top of all this is the resumption of the Capacity Market – and if the rumours are true that some suppliers may not have been banking their monthly payments, trouble probably lies ahead. It would have come as little surprise to anyone familiar with developments in the retail market over the past year when the reg- ulator announced that Brighton-based Toto had entered the supplier of last resort pro- cess. The challenger brand, which this sum- mer took on the customers of fellow failed supplier Solarplicity, was named as one of four suppliers that had failed to meet the obligation payment deadline and still owed the regulator more than £4.5 million. Even fellow challenger brand and coun- cil-backed supplier Robin Hood Energy was listed as owing more than £9.4 million in obligation payments and was loaned the money from its parent, Nottingham City Council. Questions have been asked about why a supplier such as Toto was allowed to take on Solarplicity's customers when Toto itself was just months away from ceasing to trade. Under current rules, Ofgem does not generally have a direct role in commercial transactions such as the one between the two companies, yet it has previously set out "high-level expectations" outlining the need, among other things, for suppliers conduct- ing a trade sale to liaise appropriately with their customers. One industry insider told Utility Week that there was not a single supplier that actually wanted to take on Toto's customers, and even accused Ofgem of making EDF take on Solarplicity's customers. "What you have is large companies act- ing as risk mitigators for smaller suppliers. Imagine a world where Tesco bails out cor- ner shops – the regulations are not designed for the world we are in," they said. Under the supplier of last resort rules, every big six supplier is mandated to apply for the process, and in addition, two other suppliers put forward submissions. None of the suppliers confirmed they wished to volunteer for the role; Nevertheless, Ofgem decreed EDF was the best option for consum- ers and the energy giant was also named as the SoLR for Toto's customers. In January, Tom Nicholas, Toto Energy's operations director, wrote in Utility Week about surviving the energy market. Respond- ing to rumours that his company was in diffi- culty at the time, he said: "Industry rumours are rife and flames are fanned by competitors keen to draw customers and staff away – I think we must have been 'going bust on Mon- day' for at least a year and a half now!" Nicholas spoke about how Toto entered the market in January 2017 before the price cap, the "Beast from the East", suppliers of last resort and "capacity market chaos". "The introduction of the prepay price cap stemmed our ambitions; there was insufficient margin to offer a significant dis- count and cover acquisition costs," he said. Nicholas insisted Toto would outgrow its loss-making phase and eventually stand apart from its "loss-leading competitors par- ticipating in the race to the bottom". Mutualisation protection However, if the market was tough when Toto entered the sector, it's about to get even tougher for challenger energy brands with the regulator's latest round of proposals, representing much-needed action. One issue that has been a point of con- cern and even frustration for some suppliers is that of mutualisation, which was invoked last year a£er an "unprecedented" number of suppliers failed to pay their renewables obligation. Last week, Ofgem released its latest con- sultation on the supplier licensing review regarding ongoing requirements and exit arrangements and the mutualisation process was one issue it examined. Under the proposals, a proportion of credit balances and government scheme costs will be protected (by a minimum of 50 per cent in the case of credit balances). Despite the backlash from some in the industry who understandably feel aggrieved at having to pay to cover the failings of oth- ers, it does seem surprising that Ofgem is not pushing for its third option – to cover all credit balances and government schemes. Mary Starks, Ofgem's executive director of consumers and markets, says the proposals are not "rigid". "It is about striking the balance about not making it prohibitively difficult to enter this market, but trying to bring down the cost of mutualisation. It's about striking that right balance and we are open to views as to whether we have got that balance right," she says. Meanwhile, Gillian Guy, chief executive of Citizens Advice, welcomed the proposals because they should limit the cost of failed suppliers to consumers. However, Juliet Davenport, chief execu- tive of Good Energy and a vocal opponent Tough times in energy retail In the same week that yet another challenger brand failed, Ofgem proposed measures to toughen up the energy retail market. Adam John looks at how a difficult market is about to get even harder. "The only reason people don't make payments on time under the Renewables Obligation is because they are either playing the market or they are incompetent." JULIET DAVENPORT, CEO, GOOD ENERGY

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