How you’re protected when energy firms collapse
Blog
- Publication date
- Industry sector
- Supply and Retail Market
- Generation and Wholesale Market
The recent increase in wholesale global gas prices is impacting many countries as we recover from the impacts of the COVID-19 pandemic. These are unprecedented times and we may see more suppliers than usual exiting the energy market.
We’re working closely with government and industry and are doing everything we can to make sure disruption to customers is minimised.
Three Need-to-Knows
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Am I going to be left without gas or electricity if my supplier goes bust, or do I have to find a new supplier myself?
No. We have a well-rehearsed system in place to protect households and ensure our gas and electricity keeps running.
You won’t need to find a supplier yourself. Even if your supplier stops operating, Ofgem – as the independent energy regulator – will automatically switch you to a new supplier so there will be no interruption to your supply of energy.
In exceptional circumstances, we may ask the Court to appoint an administrator to run your existing supplier rather than move you to a new one. If this happens, your existing supplier will contact you about this and explain what is happening. You will still be free to switch to another supplier as you wish and your credit balance will be protected.
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If I join a new supplier, aren’t my energy bills going to increase?
Customers of failed suppliers who are switched to a new supplier are protected by the Energy Price Cap.
This is a Government scheme which protects millions of people from sudden increases in global gas prices. The cap sets the maximum price for standing charges and each unit of gas and electricity used by customers on - whether you pay by direct debit, prepayment meter or standard credit.
Suppliers cannot charge customers of failed suppliers more than the level of the price cap.
Major energy suppliers also buy much of their wholesale supplies many months in advance, giving protection to them and their customers from short-term price spikes.
There are also numerous other schemes available to support vulnerable and low-income households including the Warm Home Discount, Winter Fuel Payments and Cold Weather Payments. Find out more in help with energy bills.
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Is the energy price cap going to massively increase this winter?
Ofgem reviews the Energy Price Cap twice a year based on the latest estimated costs of supplying energy. We announced in the summer that from 1 October, the cap would rise due to higher wholesale gas prices. Since then wholesale gas prices have increased significantly.
However, the next time the price cap is due to be updated is April 2022 which means customers who it protects needn’t worry about it increasing before then.
Recent supplier exits and take-over suppliers
Bulb Energy entered energy supply company administration under a Special Administration Regime on 24 November 2021. This special process protects essential services that may otherwise be interrupted if normal insolvency processes were used. Bulb serve around 1.6 million domestic customers and 12 thousand non-domestic customers. View our guidance for Bulb Energy customers.
What happens when a supplier leaves the market
When suppliers exit the energy market, they will usually arrange to transfer their customers to another supplier through a trade sale. Ofgem has a range of powers we can use to step in and protect households and businesses when suppliers leave in an urgent or unplanned way, for example due to serious financial difficulties. These provide a safety net, ensuring you are seamlessly transferred to a new energy supplier with no disruption to your energy supply. They also protect household credit balances, so any money you are owed is returned.
Our powers include appointing a ‘Supplier of Last Resort’ (sometimes called a ‘SoLR’). If this is not feasible, we can also ask the government for an 'Energy Supply Company Administration Order' which would put in place a 'Special Administration Regime’ (‘SAR’).
What is the ‘Supplier of Last Resort’ (SoLR) process?
This is when Ofgem directs any gas or electricity firm to take on a failed supplier’s customers. When we choose a supplier, we must be satisfied that they can supply additional customers without significantly prejudicing their ability to continue to supply their existing customers.
We choose the new supplier following a competitive process designed to get the best deal for you. Household credit balances are protected.
If your supplier goes out of business, our advice is to take a photo of your meter reading then sit tight and wait to be contacted. Learn more in our guide for households and guide for businesses.
Could bills go up?
When we appoint a new supplier using the Supplier of Last Resort process, we try to get the best possible deal for customers.
Suppliers we appoint will likely put you on a special ‘deemed’ contract when they take on your supply. This means a contract you haven’t chosen. A deemed contract could cost more than your old tariff, so your bills could go up. However, they are covered by the energy price cap Ofgem sets, which ensures you get a fair price if you are put on one.
When contacted by the new supplier, it’s best to ask to be put on their cheapest tariff or shop around if you want to. You won’t be charged exit fees. This is a challenging time in the market and we know that there may not be many tariffs available when shopping around right now.
Deemed contracts can cost more because the supplier takes on more risk. For example, they might have to buy extra wholesale energy at short notice for new customers. So they charge more to cover these costs.
What is a ‘Special Administration Regime’ (SAR)?
We are most likely to use a SAR if we can't appoint a new supplier using the Supplier of Last Resort process, for example because of the size of the supplier that is in financial difficulty. In this scenario, a special administrator is appointed to run the company until it is either:
- rescued (e.g. through a restructuring)
- sold
- has its customers transferred to other suppliers.
The process reduces the risk of financial failure spreading across the energy market, for example where costs of supplying energy and honouring credit balances would affect the ability of a SoLR to serve their existing customers. This helps keep the market stable and, in turn, protects consumers. Importantly, the process also ensures all customers of the failed energy supplier continue to get energy.
The Energy Act 2011 includes provisions to establish a SAR for energy supply companies. Ofgem (through our governing board ‘GEMA’), can apply to the Court for an Energy Supply Company Administration Order with the consent of the Secretary of State. There is a maximum 14 days for the Order to be secured by the Courts, if the supplier has notified Ofgem that it intends to enter administration. The Secretary of State also has the power to make an application.
The Secretary of State can make grants and loans to the company in administration and may also give guarantees for any sum borrowed while it is in administration.
Approval from Her Majesty’s Treasury is needed for any public financial support that is made to the administrator.
The administrator’s role is to ensure energy supplies continue at the lowest cost which it is reasonably practicable to incur, until arrangements are made to allow the supplier to operate or be rescued, sold or have its customers transferred.
Where Ofgem is making the application for an Energy Supply Administration Order, we consider on a case by case basis if we should propose an insolvency practitioner or seek to appoint the administrator proposed by the company, or its creditors where relevant.
Ofgem has been working with the Department for Business, Energy and Industrial Strategy and Her Majesty’s Treasury to ensure that the government would support a SAR if it was necessary.
What other actions is Ofgem taking during the global gas price crisis?
Our priority right now is to ensure when suppliers do leave the market, consumers’ energy supply is secure and credit balances are protected.
We’re working closely with the government and industry to ensure that customers remain protected. We have robust systems in place to ensure this.
The energy price cap, which sets a maximum price for customers on standard default tariffs, will remain in place to protect millions of people from the sudden increases in global gas prices.
We are also working with the government to ensure that we have a sustainable energy market that works for all customers. But Government has made it clear that we will not prop up failing companies – this is not in customers’ interests.
Help if you’re struggling with energy bills
During the pandemic, government and Ofgem have agreed emergency measures with suppliers, including fresh commitments to support people most in need this winter.
Suppliers must work with you to agree on a payment plan you can afford under Ofgem rules. This includes reviewing a plan you have agreed before.
You can ask for:
- a review of your payments and debt repayments
- payment breaks or reductions
- more time to pay
- access to hardship funds
- Priority Service registration – a free support service if you are in a vulnerable situation.
You might also qualify for the government’s:
- Winter Fuel Payment – a £100 to £300 fuel payment for people born on or before 5 October 1954.
- Cold Weather Payment – a £25 payment for every 7 days of very cold weather between November and March.
- Warm Home Discount – a £140 discount for some people getting Pension Credit or some people in low-income households.
- Household Support Fund - a funding package to help vulnerable households this winter. Contact your local council for advice and help on accessing the fund.
The Fuel Direct Scheme can also help you repay a debt from benefit payments. Contact Jobcentre Plus (or your pension centre if you’re on Pension Credit) to apply.
Let's Talk has a benefits eligibility checker. It includes benefits guidance if you’re affected by the coronavirus.
For more advice, see our guide on help with energy bills
What to do if your supplier goes out of business
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Take a meter reading, sit tight and don’t switch
You will continue to move to your chosen supplier if you already have a switch in progress.
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Wait for Ofgem to appoint a new supplier
You don’t need to do anything. Your supply won’t be disrupted and it should only take us a few days. Ofgem’s safety net will protect your supply and any money you have paid into your account if you are in credit.
In exceptional circumstances, we may ask the Court to appoint an administrator to run your existing supplier rather than move you to a new one. If this happens, your existing supplier will contact you about this and explain what is happening – you will be free to switch to another supplier as you wish and your credit balance will be protected.
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When the new supplier contacts you
Ask to be put on their cheapest tariff or shop around and switch if you want to. You won’t be charged exit fees.
They’ll also explain how they will manage your account balance, including any credit refunds.
Further guidance and support
Learn more about what happens and what to do and expect if your energy supplier exits the market, including answers to common questions. If you are a business, see our business supply guide.