Energy crisis ‘beyond what this industry can handle’ as suppliers push for greater government intervention

The size and scale of the current energy crisis and the impact on consumer bills are now “beyond what this industry can handle”, according to ScottishPower CEO Keith Anderson.

Speaking alongside representatives from E.ON, Centrica and EDF at a Department for Business, Energy and Industrial Strategy (BEIS) select committee meeting which also saw representatives from Bulb and d’Avro talk about their collapses, Anderson said his biggest concern was for October, when the price cap is expected to rise again, with particular concern for the most vulnerable and poor.

Anderson said that with the summer period consumption will be much lower, which will make bills more manageable, but October – especially for prepaid customers – “is going to be horrible”.

“It is now at a stage where I honestly believe the size and scale of this is beyond what I can handle. It’s beyond what I think this industry can handle, and I think it needs a massive change, a meaningful change, in government policy and approach to this,” said he declared.

Suggestions for ways in which the government can intervene included the creation of a deficit fund, which would take £1,000 from the bills of any household deemed to be fuel poor or vulnerable, with this amount then repaid over a period of ten years. Anderson said that could either be spread across the entire consumer base or the government could partially fund it.

E.ON CEO Michael Lewis said short-term measures that could be introduced include scrapping environmental levies and integrating them into general taxation, reducing VAT to zero and extending the discount on hot houses. He also suggested an extension of the existing £200 household loan.

However, protecting consumers from rising energy bills was not the only focus of the select committee meeting. Emphasis was also placed on the significant number of energy suppliers that went bankrupt in 2021, which then increased consumer bills through the supplier of last resort mechanism.

Changes need to be implemented to prevent a similar situation from happening again, with Centrica CEO Chris O’Shea saying, “I’m afraid we won’t see any more failures later this year, and that may eclipses the failures we saw last year.

He said Centrica has always wanted four things, including protecting customer credit balances and ensuring that those involved in running energy companies pass a fit and proper person test.

Later during the select committee session, CEO and co-founder of Bulb Hayden Wood confirmed that the company had conducted suitability and suitability tests for all senior executives of the company as part of the conditions. license, this process being carried out by Bulb internally before reporting to Ofgem.

Meanwhile, Avro Energy CEO Jake Brown told the committee he was unaware that a proper and proper test had been performed on himself.

Centrica’s four appeals also included the suggestion that there should be capital adequacy rules and proper risk management rules.

“If you don’t have enough capital and you can’t raise that capital, you don’t belong in that market,” O’Shea said.

He added that the insolvency service should sue the managers, directors and officers of each failing energy supplier. “Those who misbehaved should feel the full force of the law,” he said.

“If you don’t have enough capital and you can’t raise that capital, you don’t belong in that market,” O’Shea said.

Avro Energy and Bulb

There was a lot of talk during the committee session about challenger energy providers using consumer money for growth, with Lewis saying something that is fundamental and “needs to be done right” is to ensure that companies entering the market place their own capital at risk. .

“This does not happen; they gambled with customers’ money. And they’re not just playing with their own customers’ money, they’re playing with our customers’ money, because our customers now have to pay increased ongoing fees because of all these failures,” he said.

However, Wood said later in the session that Bulb had not used customer credit balances to fund its growth, referring to the various fundraisings and investments guaranteed by the energy provider.

Wood added that in the last few months before the company was placed in special administration, the focus was on preventing that from happening, with a three-step process including an attempt to raise funds. , exploring sales opportunities and finally exploring a sale of the company that would have been the government. supported.

Wood said at this final stage there were several interested parties, but was unable to name them due to nondisclosure agreements. He also confirmed that Bulb did not reject any offers from investors.

“We at Bulb should take responsibility for the failure of the business,” he said.

He added that as a new energy company – having only been created in 2015 – Bulb did not have access to the long-term hedging markets that incumbents in the sector had.

Meanwhile, Brown said that for Avro at the administration level, “there were no hurdles there.”

“The reason for this is that we followed a hedging strategy where we tried to buy little and often, looking for opportunities in the market.”

He added that Avro had had discussions with its business partners and was confident that Nord Stream 2 was likely to go live towards the end of 2021, fearing it would then crash the price and Avro could be faced with a huge margin call that he would be unable to meet.

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Social tariffs in a period of stability

Other suggestions for developments in the energy supply sector following the meeting include a move towards a social tariff, suggested by Anderson.

This would be a long-term measure that should be implemented when the market is more stable. This would see the price cap replaced by a social tariff, which would lower the price for people in poverty, with the cost of it then being “borne by those who can pay”, Anderson said.

As it stands, Lewis said E.ON expects a severe impact from the price cap hike on customers’ ability to pay their bills, and that while the government measures introduced will help, “this is not enough to mitigate the full impact of this price increase”.

He expects a significant number of people to fall into fuel poverty and a significant increase in bad debts.

If there are no further measures introduced by the government, E.ON expects to see outstanding debt rise by around 50% by the end of the year on its books, which would represent an increase of around £800m.

ScottishPower received 8,000 calls last week from people worried about their ability to pay under a new line set up by the energy supplier.

O’Shea, meanwhile, said that for credit customers receiving a bill, the real effect will likely be in January or December, meaning there’s still time “to do something about it.” “.

“We are seeing a slight uptick now, but it will get worse without further intervention,” he said.

Indeed, Anderson praised Ofgem for its engagement with the industry over the past six to nine months, saying the regulator now “fully understands” the issues facing industry and consumers.

He said he believed that by October there would be significant changes to the price cap, its methodology and its controls for companies entering the market.

“The one thing Ofgem cannot solve on its own, and that requires government help and government policy to help, is people’s ability to pay. For me, that’s the biggest problem we face,” he said.

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