U.K. Regulator Plans Funding for Energy Firms to Curb Price Hike

(Bloomberg) -- U.K. energy regulator Ofgem is proposing new financing for power and gas suppliers taking on clients from failed rivals in a bid to soften the blow of rising bills for millions of British households.

The funding would be provided by a bank that will allow energy companies to spread the cost of absorbing the new clients over a longer period of time, Ofgem said in a proposal published on its website. These costs are usually passed on to consumers and more time would limit a sharp increase in bills in April, when providers will be allowed to charge more.

The surging cost of natural gas has spurred a crisis among U.K. energy suppliers, with more than two dozen companies going out of business this year. Most of the accounts from the failed suppliers have been taken on by competitors, with some of the costs of new customers set to be added to energy bills next year.

Households could be saddled with an extra 18 billion pounds ($24.3 billions) in bills in 2022, according to Investec Plc. As U.K. natural gas prices surged more than threefold this year, the price cap -- the maximum that firms can charge most customers -- is on course to increase by 56% in April, Investec analysts including Nathan Piper have said.

Also see: U.K. Mulls Funding Plan for Energy Firms to Limit Price Hike

The Ofgem proposal would involve one or more banks lending to a special purpose vehicle that would buy a supplier’s rights to collect fees for taking on new customers. The costs could then be spread out over more than a year. Ultimately, the total price could be greater, but would result in a less severe increase next year, the regulator said. 

Ofgem said so far only one finance firm has said that it could deliver the required structure and financing by the end of next month. 

The proposal follows an effort by the energy industry to secure a private loan to limit the impact of costs on households next year. 

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