Groundhog Day for the energy sector

Just days after Ofgem revealed the supplier to owe £8.7 million in renewables obligations (RO) and feed-in-tariff (FIT) payments, Tonik Energy was no more. The Birmingham-based retailer became the third and largest supplier to cease trading this year, with 130,000 customers being transferred to another provider.

It’s a familiar scenario; the regulator publishes its annual list of retailers who owe thousands, if not millions, in missed payments, and some on the list exit the market shortly thereafter. Autumn is fast-becoming the energy sector equivalent of the 90’s film Groundhog Day and Ofgem is coming under increasing criticism over its handling of the RO scheme.

“We see the same thing around this time every year, is this the definition of a functioning market?”, ponders one industry source.

Outwardly Tonik appeared to be doing the right things; securing major investment from Japanese firm Mitsui and using it to fund renewable technologies such as electric vehicles (EVs) through its tech arm, The Phoenix Works.

However the company’s RO bill, its ‘average’ Trustpilot rating and abysmal Citizens Advice star ratings ranking were clear indicators that all might not have been well,

Following the investment of a combined £21 million from Mitsui, Tonik had envisioned supplying 500,000 customers by 2024 and aimed to be a near £1 billion revenue business by the following year. It appears that this investment ceased in the previous few months.

One observer tells us that Tonik built its business on being able to raise funds and was investing “ahead of the curve”, but that recent moves by the company to secure further investment suggests Mitsui was no longer continuing its involvement. The Japanese firm declined to comment when approached.

Further woes stemmed from its change of billing system at the start of the year. “They have fallen off a cliff with the switch from Ensek to Junifer”, says one source adding, “They’ve had really bad billing issues which has driven their complaints.”

The latest Citizens Advice star ratings table had Tonik ranked 40^th out of 40 for its customer service, with the supplier being given an overall rating of 1.7. Meanwhile its ‘average’ rating on Trustpilot left a lot to be desired. A number of complaints on the site mention issues regarding credit balances and billing.

There is also the question of net liabilities. According to the latest results available on Companies House, the supplier had net current liabilities of an eyewatering £26 million as of 31 March 2019.

“Most of that will be customer credit balances and I imagine their credit balances are much higher now, much bigger than the RO”, says one source. This is another area of contention for some in the sector as credit balances are protected by an industry levy on gas and electricity networks, meaning a SoLR may choose not to cover credit balances themselves and adding further costs onto the rest of the sector.

Attention is now focused on who will become supplier of last resort to the 130,000 former Tonik customers. Following its recent acquisition of Robin Hood Energy’s customers, British Gas is believed to be a strong contender as is Octopus Energy, with the company’s Kraken platform continually hungry for more customer accounts.

In addition to British Gas and Octopus, one industry source says they believe Scottish Power and EDF will also be in the market for more customers.

Observers are keen to stress Tonik was “very forward thinking”, that it pushed the agenda and was trying to do positive things for the industry in terms of funding renewable technologies.

Ultimately however, all the signs pointed to a struggling supplier and this theme of Ofgem’s RO ‘naughty list’ being published followed by market exists is becoming all too familiar for the retail sector. No wonder there are those who are asking whether a new approach is needed.