I take no pleasure in saying to Ofgem, “I told you so. Thanks to a perfect storm in the energy sector, many suppliers have failed. But with all storms, you can see the clouds forming first. Utility Point, the company I helped create and grow with more than 220,000 customers, has been the victim of regulators’ inaction.
What started in late spring 2021 as a search for strategic partnerships and investments to help us grow, quickly turned, as the market deteriorated, to a quest for funds to help us get through a difficult winter. It wasn’t long before it became apparent that we were fighting for the survival of Utility Point.
The board of directors held weekly meetings to ensure that we follow our position and the market as closely as possible. It was when the search for investments or external partnerships was exhausted that we knew we had come to the end of the road. We immediately contacted Ofgem to let them know that we were in a position where we could not honor our commitments. We had a few days before the news went public and we weren’t allowed to tell our employees. This period has been tortuous. My biggest concern was, and remains, the impact on our 192 wonderful staff, as well as the companies we have worked with, all of whom were suddenly facing an uncertain future through no fault of their own.
“We must not bail out poorly run businesses” is an oft-repeated truism. Yet it is evident that not all of the failed energy providers have been mismanaged. Saying this demonstrates a lack of understanding of how energy providers work. Any implication that this has happened to our business is offensive and false.
I have no hesitation in pointing the finger at Ofgem for what happened. For years, the government and Ofgem have tinkered with regulations – from poorly designed and miscalculated price caps, to passing more obligations to suppliers, and new initiatives to support vulnerable clients without provisions for cost recovery. All of this made it harder for suppliers to operate and created an environment in which small operators were inevitable to fail. When gas prices soared this fall, lightning struck and many of these small suppliers found themselves exposed.
Customers are no better off. The price cap was put in place to prevent suppliers from penalizing their customers who stay on standard variable rates after their fixed rate term expires, and to ensure that everyone pays a fair price. This mechanism was not designed to protect customers from the price increases we are seeing now. Based on current average wholesale prices, I wouldn’t be surprised to see the price cap increase by more than 20% in April 2022. It doesn’t protect people from higher prices, it just facilitates a delay in the price. cost pass-through.
In the event of supplier default, their costs – such as customer credit balances – will be passed on to the remaining suppliers and also included in the price cap. Each supplier failure will increase the cap, further increasing costs for customers.
What’s frustrating is that a simpler approach to regulation that encourages competition and innovation, while ensuring that the most loyal customers are not penalized, is possible. Why not remove the price cap? Fixed rates could be charged at a small premium, reflecting risk, for clients who want security, in a manner similar to mortgages. It could then be guaranteed by a condition of license that a supplier’s cheapest rate should be its standard variable rate. At the end of your fixed rate, you will automatically switch to the cheapest rate and providers will compete against each other on that basis: those with the best-run businesses would be the most competitive and grow.
So instead of pointing fingers at “poorly managed companies” what do we do when we have a poorly managed regulator?