Failed energy suppliers leave Ombudsman out of pocket

Several failed energy retailers have exited the market owing the Energy Ombudsman money, meaning customers who filed a complaint are unable to receive redress.

Since the start of 2018 a total of ten suppliers entered the supplier of last resort (SoLR) process.

Ombudsman Services, which is responsible for the Energy Ombudsman, said while the SoLR process ensures continuity of energy supply for consumers and protects outstanding credit balances, it does not cover complaints to the Ombudsman.

A spokesperson added: “This means that if a consumer complains to us about a supplier that subsequently ceases trading, there is no formal mechanism that enables the complaint to be resolved or the consumer to receive redress.

“The consumer could either be awaiting our decision on their case or, if we have already upheld their complaint, expecting action from the supplier to put things right, such as a financial award or an apology. In both scenarios, consumers who have escalated their complaint to us unfortunately won’t receive redress.

“Our service is free to use for consumers. We are funded by the fee a company that is signed up to our scheme pays to have each complaint reviewed. This covers the cost to us of handling the case.”

The Ombudsman would not go into details about how much money it was owed but estimates by CityAM indicate this could be around £1 million.

Furthermore it said it received a spike in complaints about energy suppliers prior to their market exit.

Spark Energy for example was subject to more than 800 investigations into customer complaints by the Ombudsman in the 12 months prior to it failing last November.

October last year was the worst month with a record-high of 105 complaints. The spike in complaints increases the service’s financial exposure in terms of unpaid case fees, it added.

The spokesperson continued: “We are a not-for-profit organisation but we are subject to commercial pressures like any business. We feel it’s important that we are able to help all consumers, regardless of whether or not their energy supplier is still trading.

“We have raised this issue with Ofgem and our two organisations are working together in a positive and collaborative way in order to identify a solution that best serves the interests of consumers.”

Ofgem declined to comment on the matter when contacted by Utility Week.

Following an influx of supplier failures the industry regulator has recently proposed tougher entry tests for new suppliers.

The new tests will be rolled out from June to drive up standards for customers and reduce the risk of supplier failure.

Companies wanting to enter the market will be subject to more “stringent” tests. They will have to demonstrate to Ofgem they have “sufficient funding” and provide a customer service plan.

The regulator will also launch a consultation on “ongoing requirements” for suppliers currently in the market in the summer.

Brilliant Energy became the third supplier to cease trading in 2019 on 11 March just days after it was revealed to be in credit default.

It followed Economy Energy, which was also in credit default prior to market exit, and Our Power.