U.K. Energy Firms Get Billions to Take Clients of Failed Rivals

(Bloomberg) -- A U.K. regulator has approved 1.8 billion pounds ($2.4 billion) of claims to compensate energy companies for taking on millions of customers left stranded as dozens of rival suppliers went bust.

About 24 household suppliers have collapsed since early August as wholesale gas prices soared and the energy regulator’s price cap limited the costs that could be passed on to consumers. The claims granted by Ofgem relate mainly to the additional wholesale energy costs absorbed by companies that took on customers under its Supplier of Last Resort process.

The largest single compensation of 681 million pounds went to Octopus Energy for taking on Avro Energy’s 580,000 customers, according to documents published on Wednesday. British Gas Trading Ltd., the retail arm of Centrica Plc, was granted a claim of 361 million pounds for taking responsibility for about half a million customers from a number of smaller firms. Shell Energy Retail Ltd. was awarded 362 million pounds.

The amount claimed by each supplier depended on the existing and expected level of wholesale energy prices at the time they needed to step in. A spokeswoman for Octopus said high energy costs at the time of Avro’s collapse meant the company was granted more money per customer than any other supplier. 

“Ofgem’s safety net has protected more than 4 million customers through the unprecedented global gas prices this year, making sure they have an energy supplier and household credit balances are honoured,” an Ofgem spokesperson said.

The supplier claims will be paid out via the U.K.’s energy networks from April, and the costs will likely be spread across the industry and fed into consumer bills for months to come. Suppliers will be able to claim for further costs later in the process, so the initial sum granted could grow significantly.

“It cannot be right that consumers pay for a regime that created a moral hazard, and apparent light touch oversight,” wrote Investec analyst Martin Young in a note. “The energy affordability storm looks set to become a hurricane that will hit land early next year.”

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