Ofgem: SoLR can cope with multiple failures

Philippa Pickford, Ofgem’s director of future retail markets, has told Utility Week that the regulator’s data shows the risk of multiple supplier failures as a result of Covid-19 is receding.

Speaking on Utility Week’s #AskUsAnything show, Pickford admitted that concerns remain about the financial stability of some retailers but insisted that the mechanisms in place to support customers in the event of a market exit remained robust.

She said that while the Supplier of Last Resort (SoLR) process was untested on the demands of multiple supplier failures at the same time, she was “satisfied the process would work well” in that eventuality.

Ofgem has said it will look at adjusting the price cap to reflect the implications of coronavirus but ruled out changes for the next update, due to come into effect in October. Pickford said this was because it was not yet clear whether payment holidays and direct debit cancellations would translate into bad debt.

“There is a difference between short-term liquidity and long-term bad debt”, she said.

The regulator is in continued discussions with the government about what protections are available, she said – including use of the Special Administration Regime.

At the start of lockdown, Ofgem put in place an enhanced information request with all suppliers for a range of financial data.

Pickford said: “We were quite concerned initially that there could be an immediate significant impact on suppliers. But, as we’ve got more information we think the risk of having multiple failures in parallel has receded.

“We are not seeing a systemic issue in the market at the moment, however clearly risks remain and we have had a significant number of failures over the last few years. There may well be more to come.

“We have tried-and-tested processes in place that would cover single or multiple supplier failures. SoLR has been used successfully a number of times recently in appointing a new supplier for several supplier failures. Although we haven’t run multiple SoLRs at the same time we have run processes close together and we are satisfied that the process would work.”

On the approach to adapting the price cap, she said: “We considered a change for the current price cap change, which will take effect in October. But we didn’t feel we had sufficient evidence to justify that at the moment.

“That doesn’t mean we haven’t got any evidence that things are changing. There is evidence that some customers are cancelling direct debits or requesting payment holidays. But we haven’t seen how that will reflect into a true bad debt cost or whether they are just to enable customers to manage their finances in a different way.”