Blog Post
Disagreement between Energy Suppliers on the need for a Government Bailout
Matt Olney • Apr 14, 2020
With many customers struggling to pay their bills and as the Coronavirus pandemic continues to impact everybody’s lives, energy suppliers are divided on whether the energy sector needs a government bailout and over who should pay for it.
Large Suppliers vs Smaller Suppliers
The disagreements have seen the larger suppliers using the situation as a way to put pressure on the government and Ofgem
to make changes the energy price cap whilst the smaller energy suppliers and those with less secure finances are asking for access to government-backed loans to help them support their customers.
Since the outbreak of the pandemic, many businesses have ended their direct debits as they struggle to pay the bills, prompting some energy suppliers to grow concerned over their incomes.
It’s not just business consumers that are struggling.
With Universal credit claims soaring as a result of many organisations furloughing or in some cases outright firing their employees' many domestic energy users are also struggling.
There have been some reports that some energy suppliers have seen a 300% increase in the number of domestic customers cancelling their payments.
Bad debt and the Price cap
The larger suppliers seem to be using the crisis to put pressure on Ofgem to look at how bad debt is calculated in the price cap.
Currently, Ofgem allows energy suppliers to charge a small amount on top of the energy they sell to cover bad debts from customers that cannot pay their energy bills.
The larger suppliers want the next price cap to reflect the current crisis and for the amount they can charge to cover bad debts be expanded in the next price cap. Such a move would no doubt result in higher prices for all consumers.
The suppliers could be disappointed however as introducing such changes to the price cap would take months due to the length and need of public consultations. The next change to the price cap doesn’t come into effect until October meaning that suppliers will need to press on until then.
Energy Suppliers in a better position than most other industries?
In a Financial Times article, the Chief executive of Scottish Power Keith Anderson said that energy companies should not be ‘screaming for a bailout’ from the UK governments as he believes the energy supply sector is in a better position to ride out the coronavirus crisis than many other industries.
He added that any bad debts arising from customers struggling to pay should be recovered via existing mechanisms that spread out the costs of missed payments among customers.
“It’s very early days and the energy sector needs to assess the full scale of the problem before making knee jerk calls for bailouts. Bad debts that cannot be recouped from customers once they are in a more financially stable position can ultimately be mutualised over a period of time as part of the mechanism introduced last year as part of the price cap.
We need to wait and see what is happening, wait and see what comes through the system, wait and see how customers react. There have been a few panic calls for action and immediate response, and I think we need to take our time and reflect. We are in a better place than the vast majority of other industries in this country,” Anderson told the FT.
The comments are likely to annoy smaller energy suppliers who lack the financial security of their larger competitors.
Energy Sector at the back of the queue?
With 2019 being a record year for the closure of over a dozen smaller energy suppliers this latest crisis has analysts are worried that even more will go bust in 2020.
Despite the concerns of some in the sector energy suppliers, unlike many companies in sectors such as hospitality and travel are still receiving income from their customers. This has caused some analysts to suggest that the sector should be at the back of the queue when it comes to receiving state bailouts.
It remains to be seen whether such a bailout will be granted but the longer the lockdown continues to go on with no end date in sight pressures will surely grow.
Further Reading
The number of failed energy suppliers jumped in 2019
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