U.K. Energy Firms Seek Government Fund to Absorb Stranded Customers
(Bloomberg) -- The U.K. government is coming under increasing pressure to help large energy suppliers absorb the customers left stranded by failed rivals, with top utilities now calling on the government to create a special fund.
Some of the nation’s largest energy companies have asked the government for working capital to help cover upfront costs estimated at about 1,000 pounds ($1,400) per household, according to people familiar with the discussions. The fund would be a more attractive alternative to state-backed loans, the people said, as it would allow the companies to keep the debt off their balance sheets.
A global energy squeeze is causing a shakeout of the U.K. industry, with companies preparing for the collapse of more suppliers. That would leave the remaining companies facing the prospect of taking on more new clients on top of the 1.7 million households they have already adopted in the past two months. While in normal times companies are keen to take on failed rivals’ customers, market prices now make it unprofitable.
The fund would cover costs including buying energy in the market at current record levels, and would come instead of state-backed loans, opposed by some large firms as they would end up on their balance sheets and affecting their credit rating, said the people, who spoke on the condition of anonymity. It would also soften the blow for consumers as it could reduce the amount big energy firms can claim back via energy bills, one person said.
The Business Department had no immediate comment.
Gas and power prices are breaking records day after day, putting small suppliers who haven’t purchased energy ahead under financial stress. Ten providers have failed since August, and ministers have warned more will likely go out of business. Large companies including Shell Energy have already taken on hundreds of thousands of additional clients and the ability of big firms to absorb new accounts is stretched to the limit.
As the sector braces for more failures, energy regulator Ofgem has requested that companies disclose their finances including details of their hedging positions and current balances so it can keep a close watch for signs of distress. The watchdog is concerned about keeping the cost of failing suppliers -- which eventually hits consumer bills -- to a minimum.
Under existing rules, when a provider fails, the regulator appoints a new one in a process known as Supplier of Last Resort, or SoLR. If a larger firm or several smaller ones fold, the government can step in as a special administrator. While that step has never been taken before, there’s concern that the current crisis is so severe that it will test the capacity of the SoLR process.
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