Guide: How are customers protected when an energy supplier goes out of business?

A number of energy suppliers have recently gone out of business, so here’s some important information about the process that takes place when an energy supplier goes bust.

Although energy suppliers don’t often go out of business, it’s still a good idea to educate yourself and stay abreast of the topic as a small business owner. In the unlikely event that it happens, there are rules in place from Ofgem, the energy regulator, that help to protect consumers, providing something of a safety net to those in need of a new supplier.

Over the course of this guide, we’ll detail what happens when an energy supplier goes out of business, touching on the Supplier of Last Resort process and the steps businesses may have to take. We’ll also answer some frequently asked questions and debunk some myths and misconceptions you might have about the process.

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The Supplier of Last Resort

When an energy supplier goes into administration and unable to remain in business via a trade or sale of assets, Ofgem is required to step in and reallocate the supplier’s customers to another energy supplier. This process is termed the Supplier of Last Resort (SoLR), which is made up of supply licence conditions 8 and 9.

Supply licence conditions

Supply licence condition 8 features two key points that relate to the obligation on suppliers to take on additional customers:

  • Ofgem may assign customers to a supplier if it is of the opinion they can continue to meet its obligations for both its existing and original customers. The supplier may not object to customers being assigned unless it is not allowed to supply the customers.
  • Customers are assigned under a deemed contract, which must be reasonable. Additionally, any wholesale energy purchases must be proportionate.

Ofgem seeks out a volunteer for the Supplier of Last Resort role, inviting suppliers who have previously indicated that they wish to be considered for the SoLR to bid for the role. In assessing the bids, Ofgem will consider how the supplier can deal with the influx of additional customers with regards to the following:

  • Can they purchase the additional wholesale energy?
  • Are they able to cope with the increased level of customer contacts?
  • Can they handle the additional customer accounts?
  • Will they provide any additional credit?

Once a supplier has been chosen, Ofgem will then rapidly transfer the customers to the new supplier. Determining the costs takes more time and has to be in line with the licence conditions.

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What happens next?

Once Ofgem has appointed the new supplier, the supplier will inform the customers of the change. Ofgem advises not to switch supplier yourself, merely to wait until you’ve been contacted by the new supplier. Part of this new supplier’s contact will also explain that customers are free to compare all energy suppliers and can switch to a better plan if they choose to – there is no requirement to stay with the new Supplier.

For those staying with the new Supplier, the new deemed contract will last no longer than six months. After this, the rate must change to the supplier’s normal rate, which is likely their current standard variable rate.

If you were on a fixed rate contract previously, this will end when you’re moved to the new Supplier SoLR. Since the deemed rates we mentioned don’t have any early exit fee, you’re still free to find and switch to a new plan.

Under supply licence condition 9, the customer can then determine whether they are eligible to make a claim for Last Resort Supply Payment – compensation for any additional costs incurred during the process.

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FAQs and common concerns

Will my supply be cut off?

Since you’re moved to a new supplier ASAP, your gas and electricity won’t be cut off and there will be no disruption to your service. While there is no need for you to do anything, Ofgem suggests taking a meter reading when you find out your supplier has gone out of business, and then wait for your new supplier to contact you.

What if I have a smart meter?

Businesses with a smart meter will still be transferred to a new supplier with no disruption to the energy supply. Ofgem will attempt to find a supplier that can give you the best deal in the circumstances. If this new supplier can’t operate your smart meter in smart mode, it will continue to work but only as a ‘traditional’ meter.

business manager on laptop

Will my bills go up?

Not necessarily, Ofgem will attempt to find an alternative supplier offering similar rates and conditions to the current contract. However, the supplier takes on more risk having to buy additional wholesale energy at short notice for new customers, so they may charge more to make up for this extra risk. When you’re first contacted by your new supplier, be sure to discuss their range of tariffs and choose the one that suits your business best.

Should I cancel my direct debit?

Ofgem states that customers shouldn’t worry about cancelling their direct debit. Your new supplier will soon contact you to explain how they will take on your account, including any direct debit arrangements.

Will my credit be carried over with me?

Although your new supplier does not legally have to pay back the outstanding credit that you may have, Ofgem will endeavour to find a supplier who offers this service. Once the new supplier has been appointed, it will then contact you to explain how this will work.

It may be a case of something as simple as automatically crediting money to your new account. Note that costs for energy you have used, but have not yet been billed for, will be deducted from your account balance.

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What about my debt?

This depends on what your new supplier agrees with your old supplier’s administrators. You’ll have to pay back the debt to your new supplier if they arrange to take on customer debts to your old supplier.

However, it could be that you have to pay it back to your old supplier or their administrator. The arrangements concerning your debt will be explained once Ofgem appoints your new supplier.

A complaint I made to my old supplier still hasn’t been resolved, what happens now?

If you raise a complaint with your old supplier and it’s yet to be resolved, you should raise the issue again with the new supplier once they’ve been chosen. The new supplier will review if the complaint is relevant now that you’ve been transferred to them, or if it can be closed.

Gazprom Energy is a leading and award-winning business energy supplier, helping thousands of small businesses manage their gas and electricity contracts. To find out more about what we can offer your business, visit the homepage or call us today on 0161 837 3395.

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