People who ditch struggling small energy firms could be left £400 out of pocket
Households could lose hundreds of pounds if their energy supplier goes bust because of a hidden loophole in the safety net for customers.
Money Mail can reveal that people who ditch struggling small firms or fail to give up-to-date meter readings could be left as much as £400 out of pocket.
The catch has emerged as dozens of small energy suppliers battle to stay afloat.
Last weekend, GB Energy became the first UK power firm to go bust since 2008, blaming soaring wholesale costs.
Its 160,000 customers will be passed to Co-operative Energy, which earlier this month was fined £1.8 million by the regulator for customer service failings.
Small providers are struggling because they sold cheap deals earlier this year to attract customers, only for the cost of supplying gas and electricity to homes to soar by as much as 50 per cent.
Unlike the Big Six energy giants — British Gas, nPower, Eon, Scottish Power, SSE and EDF — these small firms don’t have big pots of cash to fall back on when wholesale prices rise.
GB Energy’s website says: ‘Due to swift and significant increases in energy prices over recent months and as a small supplier, our inability to forward buy energy to allow us to access the best possible wholesale prices means the position of the business has become untenable.’
With experts warning a ‘handful’ of other firms could fail this winter, householders may be tempted to ditch small suppliers. But that could be a huge mistake.
Four weeks ago, energy regulator Ofgem introduced a safety net to protect credit on customers’ accounts if a firm goes bust.
But a catch buried in its rules means anyone who asks to leave an energy firm — whether before or after it goes out of business — is excluded.
Safer: Unlike the Big Six energy giants — British Gas, nPower, Eon, Scottish Power, SSE and EDF — these small firms don’t have big pots of cash to fall back on when wholesale prices rise
Customers who sit tight will have better protection, but they must give an up-to-date meter reading as soon as possible, so you don’t lose any credit you’ve built up.
That’s because if their firm does go bust, any refund will be calculated on the last available figure for energy usage.
Anyone thinking of switching to a cheaper energy tariff may want to stick with the Big Six this winter or at least larger firms such as Ovo or First Utility.
They will be missing out on only £34 a year — the difference between the top deals from small suppliers and the Big Six.
‘GB Energy is likely to be the first of many small energy firms to go bust this winter. I wouldn’t be surprised to see a handful more go under,’ says Mark Todd, director of the price comparison website Energyhelpline.
‘Small suppliers that locked thousands of customers into cheap fixed deals when wholesale prices were low and didn’t buy the power in advance to supply these households — which is unlikely as that would be hugely expensive — may soon be facing disaster.’
You will not be cut off if your energy provider goes bust because Ofgem will step in to ensure no household is left without power.
Under supplier of last resort rules, the regulator chooses another firm — typically one of the bigger suppliers — to take over accounts.
Ofgem chose to protect customers’ balances as well because more than half of households pay by monthly direct debit.
This means instead of billing you quarterly for the gas and electricity you use, suppliers estimate how much power you’ll use over the course of the year and split this into 12 equal payments.
Over the summer, you build up a surplus because the heating is off. This covers higher bills in winter, but also means energy firms are sitting on piles of your cash. According to Energyhelpline, this can be as much as £400.
Many small suppliers also bill you in advance, which means you are almost always in credit.
In fact, GB Energy customers are owed £24 million in credit, it emerged this week.
Under Ofgem’s new rules, cash will be refunded by the supplier that takes over your account, but this is guaranteed only if you’re classed as an existing customer.
If you’ve asked to switch to a new supplier, Ofgem deems you to be a former customer, so you may never get a refund or be forced to wrangle over getting your cash back.
In the case of GB Energy, Co-operative Energy and Ofgem have agreed to cover the cost of current and former customers.
However, in other cases, you may have to wait months for the firm to be wound up. You can demand an immediate refund of your credit if you stay put, but that may increase pressure on the firm’s balance sheet. It’s better to update your usage figures.
Pledge: You will not be cut off if your energy provider goes bust because Ofgem will step in to ensure no household is left without power
If your firm goes out of business, the supplier that takes over your account will use the most up-to-date information on your file to work out your refund.
So, if you haven’t given a meter reading for months, you’re likely to be short-changed.
Ofgem is urging GB Energy customers to take a meter reading immediately and keep a note of it in case of problems.
Comparison websites have been inundated with hundreds of calls from GB Energy customers since Saturday, with many looking to switch away.
Energyhelpline saw a ten-fold increase in GB Energy customers trying to leave.
Typically, if your energy firm has gone bust, it takes between two and 14 days to choose a new supplier for you, at which point your gas and electricity accounts will move over.
Households are likely to be dumped on a new firm’s standard tariff, which is usually their most expensive.
In this case, Co-operative Energy has pledged to honour the price customers were paying previously.
Of the 43 energy firms in Britain, 31 are small suppliers launched in the past few years.
They have become popular because they offer cheaper deals than the Big Six.
Npower’s Online Price Fix December 2017 deal costs an average £897 a year — £34 a year more expensive than the cheapest tariff from Places For People Energy’s one-year fixed Together tariff at £863 a year.
Joe Malinowski, founder of comparison site The Energy Shop, says: ‘Stay clear of suppliers that take payments in advance.
‘Many larger suppliers offer competitive tariffs, so if you choose a new firm, make sure any savings are worth the risk.’