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Ministers prepare for worst in gas price crisis

·6 min read
Woman looking at energy bill
Woman looking at energy bill

The government has said it has to "prepare for the worst" as the UK's energy firms continue to come under pressure from soaring gas prices.

Small business minister Paul Scully told the BBC his department was working closely with regulator Ofgem to protect customers if more firms went bust.

Nearly 1.5 million customers have been hit in just two weeks by energy firms collapsing under soaring gas prices.

Among them are Avro Energy and Green, which ceased trading on Wednesday.

Their 830,000 combined customers face being switched to a new, potentially more expensive, provider.

All affected customers will still receive energy while a new supplier is appointed by Ofgem.

Smaller providers launched in recent years have been overwhelmed by a global spike in wholesale gas prices, as economies have reopened from lockdowns and high demand from Asia has pushed down supplies to Europe.

Mr Scully said he would not speculate about what might happen to gas prices next.

But when asked what the government would do if prices did not come down again, he said: "We have to prepare for the worst... We need to plan for that situation."

He added: "We will work with each company and look at their particular circumstances to make sure we can get through this difficult time."

Tough it out

Despite Mr Scully's comments, the government has cooled on the idea of loans to the industry, says BBC business editor Simon Jack.

He says that while the government had been talking of state-backed loans for larger energy firms, that idea is now "very much on the back burner" and its intention is to "tough this one out".

The BBC has been told that ministers believe the current system for managing the failure of energy companies, which allows companies to recoup losses through an industry-wide levy, is working satisfactorily, even though it will add costs to millions of customers' bills.

Our business editor says ministers do accept that the existing system of reallocating customers would not work if one of the bigger challenger firms went bust.

In that case, the government has the power to appoint a special administrator, in what would be a quasi-temporary nationalisation.

The price cap is not the final bill

Analysis box by Kevin Peachey, Personal finance correspondent
Analysis box by Kevin Peachey, Personal finance correspondent

The plight of Avro customers is a good illustration of what may befall hundreds of thousands of people in the coming weeks.

An Avro customer in a household using a typical amount of gas and electricity, who got a fixed rate deal in August, would have been paying £1,087 a year, according to price comparison site Uswitch. In March, they could have got a deal costing £920 a year.

Now Avro has collapsed, they are likely to be paying £1,277 a year at their new supplier from 1 October, in line with Ofgem's price cap.

The price cap does not mean it is impossible to pay more than £1,277 a year. It is a cap on the price, not the final bill.

That figure is an illustration of the cap's effect on a gas and electricity customer's annual bill, assuming they have an average level of energy consumption. So, a household with heavy energy use will have a higher annual bill.

'They must have known'

Woman cooking with gas
Woman cooking with gas

The boss of failed firm Green, Peter McGirr, told the BBC he had done nothing wrong and said bigger firms would soon face problems and "come cap in hand for a bailout."

But his firm faced criticism from one angry customer, 52-year-old Sara Pilgrim of North Lincolnshire, who switched to Green just a week ago.

"Green weren't the lowest, but I decided to go with them.

"How can they have been allowed to take on new contracts that close to them going bust? They must have known something was going on six days ago," she told the BBC.

Price comparison site Uswitch has acknowledged there is currently no point in energy customers shopping around.

Justina Miltienyte, the site's energy policy expert, said: "If you are coming to the end of your fixed deal, our advice is to hold tight, stay put and be rolled over on to your supplier's standard variable rate."

UK Gas price
UK Gas price

Ofgem's price cap protects customers on some tariffs by limiting how much firms can charge per unit of gas.

But providers have complained that this means they are unable to pass on their rising costs to customers.

Firms that have gone bust chart
Firms that have gone bust chart

In the past two weeks, the number of firms which have collapsed account for more than 5% of the UK energy market.

Other small companies could fold in the coming days and weeks.

Igloo, for example, has said it is working with restructuring consultants Alvarez & Marsal, although it told the BBC it had not appointed administrators.

Bulb, the UK's sixth largest energy company with 1.7 million customers, is also seeking additional financing.

Dorset-based Utility Point, which had already ceased trading, said it had now gone into administration. Its 220,000 customers have been transferred to EDF.

Gas hob
Gas hob

What happens if your energy supplier goes bust?

  • Customers will still continue to receive gas or electricity even if the energy supplier goes bust. Ofgem will move your account to a new supplier, but it may take a few weeks. Your new supplier should then contact you to explain what is happening with your account

  • While you wait to hear from your new supplier: check your current balance and - if possible - download any bills; take a photo of your meter reading

  • If you pay by direct debit, there is no need to cancel it straight away, Citizens Advice says. Wait until your new account is set up before you cancel it

  • If you are in credit, your money is protected and you'll be paid back. If you were in debt to the old supplier, you'll still have to pay the money back to your new supplier instead

Read more about the next best steps to take here.

Gas prices are rising all across Europe, but Britain has also been affected by lower winds than usual - denting renewable energy supplies - as well as a recent fire at a National Grid site in Kent.

In the UK, firms had already been hit by a jump in costs even before the recent spike. From more than 70 suppliers in 2018, there are just over 30 now.

Industry sources fear there may be as few as 10 suppliers left by the end of the year.

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