Blog Post

Octopus Energy get £13.2m to cover Iresa debts

Paul Fox • Feb 05, 2019

Just hours after the tenth UK energy supplier announced it was ceasing trading, Octopus Energy have been revealed to have netted more than £13m to cover the debts of defunct supplier Iresa.

Octopus Energy were appointed as Supplier of Last Resort (SoLR) back in July last year after Iresa collapsed, leaving 90,000 customers without a provider. The amount agreed was over half a million short of what Octopus wanted to claim.

Ofgem conducted a consultation on the request, and received six responses in return. Taking into account these responses, they agreed on a figure of £13.02m ,marginally less than the £13.8m the company was seeking.

The breakdown of the claim that they made includes around £11.5m in customer credit balances, a further £1.5m in capital costs to fund the SoLR request, and £673,000 in transitional IT, operations and communications costs.

Commenting on the payment, Ofgem said: “Our decision will allow Octopus Energy to recover the costs of protecting the credit balances owed by Iresa Limited(Iresa) to the customers Octopus acquired in line with commitments given at the time of appointment and certain other costs incurred by Octopus in complying with Ofgem’s Last Resort Supply Direction.”

The cost of energy supplier failure

Although the payment to Octopus Energy is substantial, their acquisition was relatively small compared to some SoLRs. Ovo Energy, for example, have taken on more than half a million displaced customers over the past few months as they took on235,000 ex Economy Energy customers and 290,000 from Spark Energy.

Previously, the Guardian had estimated that the cost of rehoming these customers would be around £48.2m for the 551,000 who were displaced at the time of their calculations. This was based on a claim from Co-Operative Energy, who clawed back £14m for taking on 160,000 of GB Energy’s customers.

However, that was some time ago, and the claim from Octopus sheds a little more light on what the real cost will be.

It’s estimated that around 800,000 customers have been affected by the string of supplier failures of late. That’s around nine times the number taken on by Octopus.

Extrapolating from the Octopus claim of £13.02m, the UK could be looking at SoLR claims in the region of £117m. That’s if no more suppliers go bust.

Added to this are the missed payments to the Renewables Obligation scheme, which has seen an ‘unprecedented’ number of suppliers not making payments when they should.

Ofgem have revealed that the debt to the fund currently stands at £58.6m, money which has already been paid out and will need to be refunded.

But who foots the bill?

The money which is paid to the Supplier of Last Resort is claimed back from the networks, who in turn level their books by distributing this cost over the suppliers who are using their network.

The repayment to the Renewables Obligation fund is done through a process of ‘mutualisation’, which basically means that those suppliers who have paid their bills on time have to club together and stump up the cash to pay the debts that failed suppliers owe.

When suppliers are hit with such costs, they have no alternative but to distribute this liability around the bills of the customers. Research by consultancy firm Cornwall Insight predicts that the average dual fuel bill will increase by £6 to cover the cost of these failed firms.

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