Government should cover SoLR claims to spread impact on bills

The government should consider picking up the tab for Last Resort Supply Payment claims to spread out the costs of the industry levy and protect consumers from a sharp increase in energy bills next year, Energy UK’s deputy chief has stated.

Audrey Gallacher, who also serves as the trade body’s director of policy, made the suggestion after Bulb became the first supplier to enter the special administration regime (SAR) earlier this week.

Bulb is one of many energy market casualties over the past several months. In total, 24 suppliers have entered the Supplier of Last Resort (SoLR) process so far in 2021, leaving more than 2.5 million customers for other retailers to pick up.

In response, Ofgem recently unveiled plans to expedite Last Resort Supply Payment claims that allow companies to recover costs incurred by becoming a supplier of last resort through an industry levy. They regulator said claims submitted before the end of the year would be paid out from April 2022.

Gallacher expressed concerns about the impact this will have on consumer bills, which are already expected to rise significantly in the next price cap period.

She said: “The big ask on government would be, is there any way we can smooth these costs? We already know that there’s a big supplier levy claim going to be coming through for the 2 million customers that have already been involved in SoLRs.

“We also don’t know what the mechanism is going to be on cost recovery for the Special Administration Regime, whether it’s taxpayer or customer, and what the timescale for this is.

“What we don’t want is those billions of pounds hitting customers’ bills next year. We would say the government could step in and cover the supplier levy and then reclaim it back over time through network charges. They could even sell it on as a type of government bond.

“It’s an interesting proposition and it’s a way to minimise that big financial hit on customers. And that is the key concern – how do we minimise the impact on customers in terms of cost and affordability?”

Asked about the impact Bulb entering the SAR will have on the government, Gallacher said she hoped it makes the government realise the reality of the situation and how important it is that the market is resilient.

She pointed to failures such as those of municipal-backed suppliers Robin Hood and Bristol Energy as proof of how difficult the market is to operate in.

She continued: “I hope it will be recognised that the market can be difficult to navigate, and there needs to be greater controls on it. And that some of the distortions that allowed a lot of new entrants with unsustainable pricing are addressed.

“It might be, in the short term, a really attractive proposition for a customer to get a £900 deal, but the mutualisation costs are now in the billions. Ultimately we are going to have to pay for some of those savings now.

She continued: “We’ve been saying for two years that most retailers have been loss making and we are worried about the ability to invest in innovation and what signals current policy and regulation gives for attracting investment in this country.”

Responding to Gallacher’s comments, a government spokesperson said: “Our overriding priority is to protect consumers, which is why the energy price cap will remain in place to hold back a wave of instant bill increases this winter to ensure millions of customers pay a fair price for their energy.”