Concerns raised over debt collection by administrators

Citizens Advice has raised concerns over unregulated debt collection by the administrators of failed energy suppliers and called for an urgent review of the interactions between insolvency rules and the Supplier of Last Resort process (SoLR).

The charity said the SoLR process does not bind administrators to the same rules that energy suppliers have to follow, meaning “consumers face having their rights stripped away exactly when they need them most”.

In a new report, titled Back from the brink: How consumers are still reeling from the energy market meltdown, Citizens Advice noted that in the majority of cases, the debt books of failed suppliers are bought by the administrators rather than the incoming supplier of last resort. These administrators have the goal of achieving the best result for their creditors and will therefore seek to collect debts as quickly as possible.

The report said the administrators can demand repayment in full, immediately or within short timescales, for energy bills up to six years old, whilst offering no flexibility over payment methods.

This is in contrast to energy suppliers, which can only seek to recover debts for energy used within the previous 12 months and are obliged to offer customers affordable repayment plans with a range of payment methods.

Although they are required to investigate if a customer disputes their bill, administrators may lack access to the information necessary to resolve a dispute, whilst the information they do have may be of poor quality. Unlike with energy suppliers, they are not obliged to take these complaints further and regulatory bodies such as Ofgem or the Energy Ombudsman cannot get involved.

Customers can complain to the Insolvency Agency if they are not happy with how they are being treated by an administrator, but this process is not designed with households and microbusinesses in mind and can be “complex and arduous”.

As well as being “too quick or aggressive” in collecting debt, Citizens Advice said administrators can also be “unrealistic” in negotiations where a supplier of last resort is attempting to purchase essential customer data, thereby “delaying the process or preventing the incoming supplier from accessing it entirely.”

They may also wind down companies without closing outstanding customer service cases, preventing customers from accessing pre-failure billing or metering data that could help them to resolve disputes.

Citizens Advice said these issues are becoming more acute over time, with 43% of contacts about supplier failures to the charity in May 2022 relating to administrators pursuing debts, compared to just 10% in November 2021. It said the average debt being chased by administrators is £370.

It therefore called for an “urgent review” of the interactions between insolvency rules and the SoLR and Special Administration Regime processes, and whether administrators have handled supplier failures in the right way.

Citizens Advice said it is concerned that Ofgem is “nearing the limit” of what it can do within its existing powers, particularly where harms arise from administrator practices.

To close the gap, the charity said the government, Ofgem and the Insolvency Agency should work together to introduce new and improved protections for consumers. It said enduring reforms could be introduced through the Energy Security Bill or the Draft Audit Bill but the government must reach a temporary agreement with the Insolvency Agency to ensure additional protections are in place ahead of the coming winter.

It said Ofgem may also need new powers to tackle problems with administrators.

The costs of failure

The report was a follow up to an earlier one in December, which at the time estimated the cost of supplier failures since the preceding August at £2.6 billion – or £94 per household.

Citizens Advice now estimates the cost of the 28 supplier failures since August 2021 at £4.6 billion – or £164 per household – including £1.9 billion for the failure of Bulb, which entered the government’s Special Administration Regime and is in the process of being sold off.

The earlier report made a number of recommendations to the government and Ofgem, and Citizens Advice said progress is being made on most, in particular the recommendations to protect credit balances and develop regulations on hedging and capitalisation.

But as well as filling the gaps in protection for consumers being chased for debts by administrators, the charity said the government has failed to provide assurances that consumers will not have to pick up the large and rising tab for Bulb’s failure. It noted that this was made more expensive by the government’s decision not forward-purchase energy for the suppliers’ customers ahead of further price rises.

“There are just 12 weeks before the start of winter,” the report stated. “Before the nation needs to switch on their heating, action needs to be taken to ensure that the costs of regulatory failures of the past don’t add to the already high burden households are facing.”

Citizens Advice also called on the government to make sure already announced bill support reaches everyone who needs it, including legacy prepayment meters customers and people who pay their energy bills via rent.

Following forecasts from Cornwall Insight that the energy price cap is on now track to rise to £3,244 in October and £3,363 in January, the charity said the government and Ofgem should continue to assess whether further financial support will be necessary.

Dame Clare Moriarty, chief executive of Citizens Advice, said: “More than half a year since the energy market went into freefall, the bill for supplier failures is still mounting.

“On top of this, we’ve found that too often people are pushed from pillar to post when their supplier fails – adding to their stress and worry at an already difficult time.

“An overhaul is needed before winter piles more pressure on suppliers and customers. The government must improve the supplier failure process and ensure people who’re struggling aren’t chased for debts or left in limbo when they’re waiting for a refund.”

One more

The report was released shortly before Ofgem announced the failure of yet another energy supplier – UK Energy Incubator Hub, which was formerly known Euston Energy and was trading under the names Northumbria Energy and Neo Energy.

Last week, the regulator revealed it was seeking to force the company to remove one of its senior directors in what would be the first use of its new ‘fit and proper’ requirements introduced last year in response to the retail market turmoil.

Ofgem has now announced that the supplier’s 3,000 domestic customers were transferred to Octopus Energy on Saturday (9 July) following its appointment as SoLR.

Octopus said in a statement: “We are delighted that Octopus Energy has been appointed by the energy regulator Ofgem to look after the customers of the UK Energy Incubator Hub.

“Octopus Energy has a strong track record in large customer migrations: We have acquired five energy retailers in the UK, migrated millions of customers through our Kraken licensing deals with large energy suppliers and successfully taken on the customers of four failed energy suppliers.

“Last year, we were appointed supplier of last resort for Avro Energy – the largest SoLR customer migration the UK has ever seen – moving over half a million customers over to Octopus Energy.”