Ofgem have made a decision that should have been made 5 years ago and would have saved you £100s on your energy bills.
Hey everyone, this is another huge update from Ofgem over the last week or so, they appear to be ramping up their efforts in preparation for the Autumn.
Energy Crisis Refresher
There are some things you know about the energy crisis and some things you probably don’t. Lets start back in August 2021, the very beginning of the energy crisis. All suppliers removed fixed rate tariffs from the markets, Ofgem’s price cap protected consumers in the short term but at the expense of the viability of energy suppliers, experts were concerned that energy bills may end up doubling – this was all before Russia invaded Ukraine and our bills ended up quadrupling!
During the first six months of the crisis, you may remember, over 30 energy suppliers collapsed, but there are some things you may not know. Firstly, when a supplier collapses, all of its customers are moved to another supplier. Ofgem hopes that suppliers will offer to take on the customers, but if they don’t then Ofgem forces one supplier to take them on. This entire process of moving tens of thousands of customers from one supplier to another is called the “Supplier of Last Resort” or SoLR (pronounced “solar”).
So, over 30 times in 6 months we had a SoLR process occur, but this isn’t free, nor is it cheap. In total, best estimates are that the SoLR processes cost around £2.5bn-£3bn – but who pays this? You guessed right, we do! Ofgem put the SoLR costs onto the price cap, which around 95% of us ended up on before fixed rate tariffs came back. This added an extra £100ish to our bills, plus the increased profit allowance, headroom allowance and tax we all had to pay for this.
Now here’s the bit you probably didn’t know: energy suppliers didn’t need to run out of money to collapse, they simply needed to expect to run out of money and then they can shut down their business. A lot of the energy suppliers that collapsed still had money in the bank – in fact, according to Ofgem CEO, Jonathan Brearley, they had hundreds of millions of pounds still in the bank. But, because there were no rules for what happens to that money, the shareholders just took it whilst leaving the UK public paying billions for their “collapse”. That’s right, shareholders got massive payouts for their businesses collapsing and took on no responsiblity of the costs of the collapse.
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Ofgem’s New SoLR Rules
This is five years too late, but Ofgem have finally thought up the brilliant idea of saying that any supplier that collapses but still has money in the bank must use that money to cover the SoLR costs before anything is passed onto consumers.
This is something that obviously should have been in place prior to the crisis, and is likely to have very limited impact now we are kind of out of the crisis. Had this rule been in place back in 2021 we would have seen two likely outcomes. First, consumers would have had lower bills, because a large chunk of the SoLR costs would have been covered.
Second, and arguably more beneficial, is that not so many suppliers would have collapsed. If the shareholders were unable to access the hundreds of millions of pounds in their business accounts then they would have been less likely to make the decision to cease trading. Instead, they would likely have tried other tactics to improve the viability of their business, such as taking on additional revenue streams by diversifying into other services, reducing costs significantly, seeking finance to get them through the hard times, anything other than collapsing.
Overall, this is good news. Ofgem’s new rule will add another layer of protection from profiteering suppliers, which is great. I just can’t help but feel a little bitter, it is so unlikely that we’ll ever be in another crisis like we experienced in 2021/2022, it feels like putting on a stab-proof vest after we’ve been attacked already. Or, as the title indicates, Ofgem are closing the barn doors after the horses have bolted.
These new rules come into effect from 1 October 2025.
Thanks for reading everyone, please don’t forget to subscribe to my weekly newsletter for regular access to my content and information on money-saving deals!
Richard Winstone
The Regulator Guy.
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