Lewis: ‘Free bet’ on retail market has to end

The chief executive of Eon UK has urged Ofgem to take decisive action to ensure customers do not continue to pick up the tab for supplier failures.

Michael Lewis was responding to the recent announcement that £120 million of unmet Renewables Obligation (RO) payments would be mutualised across the sector.

Lewis told Utility Week it was unacceptable that suppliers were still allowed to “gamble with customers’ money” and criticised Ofgem’s U-turn on ring-fencing credit balances.

Earlier this month, Ofgem confirmed that 27 failed energy retailers had left the market owing £120 million in RO payments. There was only one currently active supplier, Delta Gas and Power, on the list of companies that had failed to meet their obligation in full by 31 October. Delta eventually paid its dues at the end of November. The others listed, including Avro Energy, People’s Energy and Pure Planet, had ceased to operate some time ago.

Lewis told Utility Week: “The (cost of the) collapse of about 30 energy suppliers in recent years is around £9 billion, hitting every consumer – even the most vulnerable – with a bill of about £300.

“Ofgem’s own report says companies were allowed to enter this market on a ‘free bet’, with the cost ultimately getting picked up by customers around the country. Our view is that this ‘free bet’ has to end. It can’t be acceptable that new suppliers are allowed to gamble with customers’ money which is why we’re disappointed Ofgem has changed its mind on ring-fencing credit balances.

“We cannot allow badly managed and poorly capitalised companies into this market and we will be looking carefully at the new proposals from Ofgem for capital adequacy.”

Ofgem’s consultation on financial resilience in the retail sector was released as part of a raft of documents at the end of November. This saw the regulator pledge to press ahead with plans to ring-fence RO funds and introduce a minimum capital requirement for all suppliers.

It said it had considered the responses to credit balance ring-fencing and recognised the view that this approach “would be untargeted and impose costs on all suppliers – including efficient suppliers – in a way that on balance we do not believe to be in the interests of consumers”.

Ofgem said it expected minimum capital requirements, alongside RO ringfencing, to have net consumer benefits of £74 million to £93 million on average annually over the next six years. This is £34 million to £53 million more than market-wide credit balance and RO ring-fencing.

However, it has proposed new powers for it to order individual suppliers to ring-fence their credit balances when they are at risk of not meeting certain financial resilience benchmarks.