Small supplier Economy Energy has collapsed just days after regulator Ofgem banned it from taking on new customers for three months. The ban came following a string of customer service complaints.
The company has around 235,000 domestic customers, who will be assigned to a new provider under Ofgem’s ‘supplier of last resort’ process. Economy Energy customers are advised not to switch supplier until the process is complete. Their energy supply will continue uninterrupted and their credit balances will be protected.
Economy Energy had faced criticism and censure from Ofgem for its “unacceptable” customer service, including the mishandling of billing, refunds, and customer complaints. Last week Ofgem banned the small provider from signing up new customers, taking one-off payments, and increasing direct debits until its customer service performance improved.
At the time of the company’s collapse, the Energy Ombudsman had 1,303 open investigations into complaints from customers of Economy Energy, and were logging more monthly complaints about the supplier than of any other outside of the Big Six, which have much larger customer bases.
“All suppliers are required to treat their customers fairly. Where they do not, Ofgem will take the necessary steps to ensure suppliers change their behaviour and to prevent further harm to customers,” Anthony Pygram, director of conduct and enforcement at Ofgem, said at the time.
The shuttering of Economy Energy means that nine small energy providers—including Spark Energy, Extra Energy, Future Energy, National Gas and Power, Iresa Energy, Gen4U, One Select and Usio Energy — have folded within the last year, displacing 800,000 customers. However, as the cost of allocating these consumers to other suppliers is spread across all energy bills, we’re all feeling the impact of these failures.
The poor fortunes of small suppliers over the last year has raised questions about the stability of the UK’s energy industry, and has prompted Ofgem to strengthen its licensing procedures for new market entrants.
The number of upstart suppliers has exploded in recent years, from just 11 in 2008 to more than 80 today. Meanwhile market share for the Big Six has fallen to 75%, done from 100% just over a decade ago, as customers, pursuing discounts, switch to new competitors. Currently the cheapest tariff on the market is offered by Utility Point, a company that only applied for its gas electricity licence on 19 November 2018. At £903 for a typical dual fuel customer, it’s £151 a year cheaper than the lowest tariff from a Big Six supplier—£1,052 from British gas—and £357 less than the most expensive, £1,260 also from British Gas.
However, discounted tariffs leave these small suppliers will little room to manoeuvre when wholesale fuel prices rise, as they did precipitously last year. Additionally, a pound weakened by Brexit uncertainty has sapped suppliers’ purchasing power in the global energy market.
Many small suppliers have made ends meet by reducing customer support services, leading to a rash of complaints and calls for action from consumer watchdog Citizens Advice.
“It is vital now that Ofgem does more to protect consumers from poor customer service,” Gillian Guy, chief executive at Citizens Advice, said following the collapse of beleaguered supplier Iresa in July.
Ofgem has responded by stiffening its licensing procedures for new suppliers. From the spring, new market entrants will be required to demonstrate they have funds and resources to operate for 12 months and details how they will handle customer service complaints and protect vulnerable consumers.
While Citizens Advice welcomed the new regulations, it said Ofgem needed to do more to protect customers from companies already in the market.
Meanwhile, the price cap for default tariffs, set at £1,137 for the typical dual-fuel customer paying by direct debit from 1 January, is expected to further hit small suppliers.
Economy Energy did not offer apology to its customers on its website but simply directed them Ofgem’s site.