The past few years have seen several small energy providers go out of business due to reasons such as high wholesale costs and the government-imposed energy price cap, which has limited how much they can charge many of their customers.
The good news is that this market shake-out has left behind a smaller number of stronger energy firms, arguably reducing the chances of this happening to such an extent again.
In this guide, we take a look at what happens if your energy firm goes under and the steps you should take, whether you are a domestic or business customer
What is the Ofgem safety net?
The energy market regulator Ofgem has put a ‘safety net’ in place to ensure consumers are protected if their energy company goes out of business, meaning they experience as little disruption as possible, if they suffer any at all.
As part of its regulatory role, Ofgem constantly monitors the financial health of all energy companies operating in the UK. This means it will know in advance if a company is in trouble, enabling it to swing into action to protect customers before they are aware of any problem.
Will my energy supply be cut off?
No. Thanks to the safety net, there will be no disruption to your gas and electricity supply as you’ll be moved to a new supplier automatically and seamlessly, with no interruption.
How does Ofgem choose my new supplier?
Ofgem will put the case out to tender among other energy firms and, following a competitive process designed to find you the best possible deal, a new supplier will be appointed – usually within a few days. This is known as a ‘Supplier of Last Resort’.
When making its decision, Ofgem will look at factors such as whether the supplier can manage new customer accounts efficiently and whether it can offer a competitive tariff.
Once a decision has been made, details will be posted on the Ofgem website and you will be contacted by the new supplier. You’re also likely to see coverage of the event in the media.
Is there anything I need to do?
It’s a good idea to take a meter reading as soon as you find out your old supplier has gone out of business. You should then sit tight and wait until Ofgem has appointed a new supplier and the supplier has contacted you.
Resist the temptation to switch tariffs before then as you may lose any credit you’re owed.
Will I be on a different tariff?
Yes, you’ll be put onto a new tariff with your new supplier. This is known as a ‘deemed’ tariff, as you haven’t chosen it.
Will my energy bills be more expensive?
Ofgem will aim to get you the best possible deal, but your energy bills may increase on your new tariff. Deemed contracts tend to be more expensive because your new supplier will have to buy additional wholesale energy at short notice for its new customers. Your new supplier may therefore decide to charge more to cover this extra expense.
To keep the cost down, once your new supplier has been in touch, it’s worth asking if you can be moved onto their cheapest tariff.
What happens if I have a smart meter?
If your new energy supplier is unable to operate your smart meter in smart mode, your meter will continue to work but as a traditional ‘dumb’ meter.
This means you’ll need to provide manual readings to your supplier on a regular basis to ensure you are being billed accurately – readings won’t be sent automatically to the provider. Should you switch to another supplier at a later date, your meter should be able to work in smart mode again.
If I’m not happy with my new supplier, can I switch?
Yes you can, and the good news is you won’t be charged an exit fee for doing so (some fixed term contracts levy a fee if you leave before the end of the term). You can use our online comparison service to look for a cheaper tariff.
Fixed rate tariffs, where the amount you pay per unit of gas or electricity remains the same for the term of the deal, are often the most competitive.
What if there’s credit on my old account?
If you have credit on your old account (as a domestic customer), your new supplier will pay back the amount you’re owed. Your new supplier will be in touch to explain how this will work – it could simply be a matter of crediting the funds to your new account.
What if I am in debt with my old supplier?
If you owed money to your old supplier, you’ll still need to pay this back. Again, your new supplier will contact you to let you know how this will work. It may be that your new supplier takes on your debt and you repay your new supplier, or you may have to pay back your old supplier through its administrator.
Do I need to cancel my direct debit?
It’s best to wait until your new supplier contacts you before cancelling your direct debit so that they can explain how they will take on your account, including direct debit arrangements.
What if I’m a prepayment customer?
If you have a prepayment meter, you are still protected by the Ofgem safety net. This means that you can use any money loaded onto your meter as normal. Your new supplier should send you a new top-up key or card as a priority, but if you need to top-up before it arrives, it’s best to get in touch with your new supplier.
What about businesses?
If you run a business and your energy supplier goes bust, the safety net will still kick in and you will be transferred to a new supplier. Where the rules differ, however, is if you’re in credit with your old supplier. With businesses, credit balances are not protected under the safety net so you may not get your money back.
Ofgem will try to choose a supplier that is able to refund some or all of your credit, but this is not guaranteed. If your new supplier isn’t able to refund your credit, you’ll need to contact your old supplier’s administrator who will be handling your old supplier’s debts. You should be able to find the administrator details on your old supplier’s website.
You’ll need to contact the administrator to register as a creditor and explain exactly how much you’re owed. It’s worth having recent bills to hand as you’ll need to prove that your account with your old supplier was in credit.
The administrator may be able to pay back some of your credit but note that it may be more than a year before this happens.