Court orders failed suppliers to hand over RO payments to Ofgem

A High Court judge has ordered failed energy retailers to hand over unpaid Renewables Obligation (RO) payments to Ofgem in what the regulator has labelled a “significant outcome”.

The case, which was heard last month, was brought by the administrators and liquidators of Igloo Energy, Economy Energy, Green Supplier, PFP Energy, Utility Point, Peoples Energy, Avro Energy and Neon Reef and sought to determine whether insolvent retailers are liable for monies owed both via the RO and customer credit balances.

Mr Justice Zacaroli ruled that Ofgem is a creditor of these companies for liabilities due under the RO and that it can therefore claim for owed payments from the insolvent estates.

He further ruled that Suppliers of Last Resort (SoLRs) are also entitled to be treated as creditors for the credit balances they have honoured for the customers of failed suppliers, meaning they too can claim back costs from the insolvent retailers.

The ruling provides clarity as to what monies the energy regulator can claim once a supplier leaves the market, with one law firm saying Ofgem’s rules on the issue previously “have remained untested and open to interpretation”.

It comes shortly after Ofgem confirmed that the mutualisation of missed RO payments has been triggered for the fifth consecutive year after a number of suppliers failed to pay by the 31 October late deadline. As of 1 September, 36 retailers, most of which are no longer active in the market or are insolvent, had left a a £163 million shortfall in the RO buyout funds.

In response to the ruling, an Ofgem spokesperson said: “When an energy supplier fails, Ofgem’s ‘safety net’ ensures that its customers do not need to worry, because a new supplier will be appointed for them by Ofgem who will continue to supply them with energy and honour their credit balances.

“This is a significant outcome for suppliers and consumers and Ofgem is pleased that the court has decided that failed suppliers cannot leave these industry debts behind, for others to pay, where there are funds available to be paid to creditors.”

Andy Stirk, national head of restructuring at law firm Womble Bond Dickinson, which represented insolvency practitioners from Alvarez and Marsal, said the ruling provided “much-needed clarity” for the sector.

He said: “When it comes to the failure of domestic energy suppliers, Ofgem’s rules and regulations have remained untested and open to interpretation.

“Given the significant number of supplier failures the industry saw in 2021, the judgment today provides some much-needed clarity on a range of issues for the domestic energy supplier sector and for officeholders adjudicating creditor claims and returning money to the creditors of insolvent estates.”

Last week, Ofgem provisionally approved more than £426 million of Last Resort Supply Payment claims by SoLRs, allowing them to recoup the otherwise unrecoverable costs of becoming a SoLR, including credit balances. They largely consist of true-up claims by companies which had previously received approval to claw back around £1.8 billion as part of a temporary expedited process launched last year following a raft of supplier failures.