What happens when a supplier goes bust

by Jane Lucy | July 26, 2018

Tips on when a supplier may be in financial trouble

  1. If your direct debit amount suddenly goes up without explanation, particularly if your account is in credit, this may be a sign the company needs cashflow fast. Some companies come through these phases without a problem and it can relate to sudden price changes in the wholesale market (there is generally stuff in the news). But it can be a sign of financial difficulties.

  2. If your supplier is being reprimanded by Ofgem (the energy market regulator) and being forced to take action that will likely cost them money. Examples may be if they’re prohibited from acquiring new customers until they satisfy Ofgem they are more robust, and/ or adding extra capability to their customer service operations. These can often be reported here.

What actually happens if they do go bust? A little more information

Ofgem appoints what is called a “Supplier of Last Resort”. This might sound scary, but actually just means that they have found someone new who they trust to take care of you and ensure there is no disruption to your energy supply. This new supplier will have been vetted by Ofgem so you can rest easy knowing that your energy will continue to flow.

Ofgem chooses the Supplier of Last Resort against a set of criteria which includes ensuring that:

  • the new supplier has capacity to take on all new customers swiftly and efficiently without impacting the needs of their current customers;
  • all customers will continue to receive their supply of electricity and gas without any interruption;the Supplier of Last Resort can realistically obtain enough gas and electricity to cover the increase in customers they will be supplying, issue bills in a timely manner and have call centre capacity to take on an increase in customers;
  • the supplier can voluntarily reimburse any credit balance for customers

Ofgem invite suppliers to apply to be a Supplier of Last Resort and if none come forward then they will appoint the supplier who they feel is best suited to getting the job done.

Whilst Ofgem have stated in the past that the Supplier of Last Resort will likely be British Gas, EDF Energy, E.ON, npower, SSE or Scottish Power, it is worth noting that this will always be assessed on a case by case basis, taking into account the profile of the current customer base so the Supplier of Last Resort may not always be one of the above mentioned companies.

Important thing to note: If you pay by direct debit and are in credit with your current supplier at the time they cease trading it is worth being aware that Ofgem have put in place rules to protect customers from losing this credit at the time of supplier failure. Please bear in mind that should you initiate a switch prior to your Supplier of Last Resort being appointed you may lose any credit balances.

What happens after a Supplier of Last Resort is Appointed?

Your previous tariff with the original supplier will be replaced by what is called a Deemed Contract. You will be advised of any change in cost and be free to switch without any exit fees. However, as above, you’re best to wait to hear from the Supplier of Last Resort before *swiching if you are currently in credit in order to avoid losing your credit balance. *

In short, our advice to you

  • Don’t panic. Ofgem will ensure that there is no disruption to your gas or electricity. You will not be cut off.

  • Take meter readings as soon as you become aware that your supplier is no longer operating, you will need these to pass on to the Supplier of Last Resort.

  • Be prepared that your energy costs may increase – this is due to the fact the Supplier of Last Resort will have to precure high levels of energy at short notice which will be costly to them. Ofgem will ensure the costs passed on to you as a customer are no more than is reasonable taking into account the cost of supply and a reasonable level of profit.

  • If you are currently in debt to your supplier, your debt will not pass to the new supplier however Ofgem may still require you to make payments to your old supplier even if they are no longer in business.

  • Prepayment customers could be particularly vulnerable, but still don’t panic as Ofgem has put in place protection to ensure that you can maintain your supply. Any existing credit on your prepayment key will still be honoured, and your new supplier will send you out a new key as priority. Should you run out of credit before this arrive and need emergency credit applied you should contact your new supplier who will be able to assist you.

  • If you were on a fixed rate tariff unfortunately this will not be honoured, and if keeping your energy costs fixed is a priority for you then Labrador can help you find a new tariff that will be fixed. You won’t have any exit fee to pay when leaving the Supplier of Last Resort.

If you have any concerns or questions that you want to talk through with us, please contact us on contact@thelabrador.co.uk we will be happy to help you through this unsettling time.