More than a quarter of a million energy customers of failed suppliers moved onto rip-off standard variable tariffs

More than a quarter of a million customers have been moved onto expensive energy deals after their supplier went bust in the last year – with some hit by overnight price hikes of hundreds of pounds, according to new Which? research.

The consumer champion found that of 925,000 energy customers whose supplier failed in the past 18 months, more than a quarter (283,000) were shifted onto standard variable tariffs – deals which often tend to be among the most expensive available on the market.

Firms acting as a Supplier of Last Resort play an important role in keeping gas and electricity supplies running – and they may have to find ways to cover the extra costs they incur as a result of taking on extra customers.

But the current system fails consumers – leaving them facing a lottery, not knowing whether Ofgem will move them onto one of the cheapest or most expensive deals on the market when their supplier goes bust.

Brilliant Energy and Northumbria Energy’s 17,000 customers were moved onto SSE’s standard variable tariff, which at £1,253 a year was £1 less than the maximum permitted by the price cap. SSE told Which? these customers faced price increases of 38 per cent on average.

A total of 235,000 Economy Energy customers were moved onto standard variable tariffs via the Supplier of Last Resort process with Ovo Energy.

Its customers would either have been put onto the Ovo simpler standard variable tariff which was at the level of the price cap at £1,137 a year, moving to £5 below the new price cap level at £1,249 a year in April. Or if they had prepayment meters they would have moved to Boost’s tariff in January at £1,134 a year.

After Our Power collapsed, 31,000 prepayment customers went onto Utilita’s Smart Energy variable deal, where appropriate, at £1,240 – £2 less per year than the prepayment meter price cap.

Which? asked Utilita what price changes Our Power customers experienced but it did not provide this information.

Not all Suppliers of Last Resort put customers onto standard variable tariffs with some, including Octopus Energy, moving customers onto their cheapest tariffs.

A series of gas and electricity firms, 10 in total, have stopped trading since the beginning of 2018, with rivals claiming many offered unsustainable loss-leading tariffs – exposing serious flaws in Ofgem’s system for issuing gas and electricity supplier licences.

The knock-on effects of an energy firm going bust go much further than sudden price increases for customers. Some customers have reported being threatened with bailiffs over debts owed to a failed supplier, while all consumers face paying more to cover industry-wide costs when businesses go under.

Which? is calling on Ofgem to get a grip on this chaos by ensuring its new tests for suppliers – due to start this week on 5 July – are sufficiently stringent that they prevent so many weak and unfit firms from entering the market if they can not sustain prices and customer service levels. The ongoing reforms for existing energy firms must also ensure current suppliers’ financial positions are sustainable.

Ofgem, and the government in its forthcoming energy White Paper, should explore ways to lessen the financial burden and improve the overall experience for consumers when energy suppliers go bust.

Natalie Hitchins, Which? Head of Home Products and Services, said:

“It’s wrong that energy customers face a lottery when their supplier goes bust – and that those who have followed advice to do their research and shop around for a better deal can be hit with such substantial price hikes.

“Ofgem must ensure its new checks are sufficiently robust to bring an end to this cycle of supplier failures, and alongside the government should explore ways to lessen the financial burden and make the process easier for consumers when energy firms collapse.

“For now, switching is still the best way to get a good deal and better service, so anyone unhappy with the service they are receiving or the price they are paying should check the results of our energy customer satisfaction survey and find a better-rated supplier. They could save around £300 a year.”

Case studies

Natalie Gibbons said:

“I was devastated to be told that I was with a new company, paying more, with messed up payments and then didn’t get a bill for weeks. I am left out of pocket from the extra cost of energy and am being chased for additional money which I have already paid to the supplier that went bust.”

William Taylor said:

“While I’m grateful to the Supplier of Last Resort the communication around the process was poor and moving me automatically onto an expensive variable tariff felt like naked profiteering.”

Notes to editor

• Three of the Suppliers of Last Resort in this research put customers straight onto a Standard Variable Tariff (highlighted green in the table below).

• Ofgem’s Supplier of Last Resort guidance: https://www.ofgem.gov.uk/publications-and-updates/supplier-last-resort-revised-guidance-2016

• Customers can compare energy deals with Which? Switch, a transparent and impartial way to compare energy tariffs and find the best gas and electricity supplier.

• Which? calculates that a medium user (using 3,100kWh gas and 12,000kWh electricity per year) on a dual-fuel default or tariff standard tariff at the level of the price cap could save up to £381 a year by switching to the cheapest deal on the market. Based on tariffs available in all regions in England, Scotland and Wales, paying by monthly direct debit, with paperless bills. Data is from Energylinx and correct on 10 June 2019.

• According to Which?’s Consumer Insight Tracker, since the beginning of 2018 trust in the energy industry has remained consistently low and has gone down from 35 per cent to its current level of 31 per cent – the joint-lowest it’s been over this period.

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