U.K. Households Will Start Paying for Energy Failures in April

(Bloomberg) --

U.K. households will start paying the price of mass failures of the nation's power and gas suppliers as soon as April, after the regulator said surviving energy companies can start recouping losses sooner than planned.

Many energy supply companies went bankrupt earlier this year as wholesale energy costs soared throughout Europe and the suppliers still left in the U.K. market were obliged to absorb millions of stranded customers, incurring billions of pounds in extra costs. In response to complaints from suppliers that they might have to wait as long as 18 months to get reimbursed, the regulator Ofgem has brought forward the date suppliers can start to recover these claims via bills to April. 

The net result is higher costs for consumers already facing a hike in the nation's price cap. And due to the way those costs are recovered, the supplier exits will probably result in higher costs for all consumers, not just the households that switched supplier.

“We recognize that this is a difficult time for consumers who will face higher energy costs from April 1 when the price cap increases to reflect the current high wholesale price,” Ofgem's director of retail Neil Lawrence said in a letter published Wednesday. “We have designed this faster levy claim process to protect both consumers directly affected by supplier insolvencies and all consumers who will have to pay these costs.”

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The surge in wholesale prices to levels almost four times higher than usual for this time of year has wreaked havoc on the energy retail sector, which must adhere to regulated price caps for some customers. Since the start of August, 24 suppliers have collapsed, the latest announcement coming from Zog Energy Ltd on Wednesday. For households, higher energy bills will come at a time when inflation is rising making everything from food to petrol more expensive. 

The cost associated with the collapse of these suppliers stands at about 3.2 billion pounds ($4.3 billion), according to an analysis by Investec Bank Plc. It's this tab that will start to be reclaimed from April, rather than from October as previously expected.

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The so-called supplier of last resort, or SoLR, companies need to submit claims by Dec. 6 and Ofgem will decide whether to approve them by Dec. 17. This will enable networks to reflect levy claims in their charges from April and repay SoLRs from May.

It's still likely to take 12 months for the full costs to be recovered, Ofgem said. 

“Changes that would allow costs to be recovered in less than 12 months would likely have an even greater impact on consumer bills, network companies and other suppliers and so would require more detailed analysis,” the regulator said.

The accelerated process is temporary and to reflect “extreme market conditions,” it said.

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