Ballooning Customer Debt Is Next Problem for UK Energy Suppliers

Britain’s energy suppliers are facing a bleak year as hard-up customers struggling to pay bills leave them with mounting bad debt.

(Bloomberg) — Britain’s energy suppliers are facing a bleak year as hard-up customers struggling to pay bills leave them with mounting bad debt. 

Energy prices have dropped from their record highs, but remain almost double the level of two years ago. It’s stranding businesses and households — already swamped by surging living costs — with high energy bills that suppliers fear will never be recovered.

Overdue debt is estimated to have grown to £3.2 billion to £3.6 billion ($4 billion to $4.5 billion) from £2.5 billion last year, Emma Pinchbeck, chief executive officer of industry association Energy UK, said at Ofgem’s Vulnerability Summit on Monday. Some suppliers were “providing over £500,000 per week in credit to their customers,” she said.

This year has seen a “continued squeeze on people’s finances, translating into a debt crisis which is going to be with us for a long time to come,” Clare Moriarty, CEO of charity Citizens Advice, said at the same summit. 

The situation could snowball into a major headache for Prime Minister Rishi Sunak, whose ruling Conservative Party faces local polls across the country next month, and a general election in less than two years. High costs of food and energy are slamming consumers’ budgets and keeping inflation stubbornly high.        

A YouGov survey commissioned by the Warm This Winter campaign found that 29% of people were in debt to their energy companies. Over half of those feared they won’t be able to save over the summer to pay off their outstanding bills, potentially sending outstanding bills spiraling.

Small and medium-sized businesses are also facing a squeeze after state support with bills over the winter ended, leaving some 370,000 at risk of closing. “The most material level of risk over recent months has actually been in that SME area of the market due to insolvency,” said James Cooper, a partner at Baringa.

Prepaid Meters 

One way to prevent households from racking up unaffordable bills are controversial prepayment meters. Power and gas supply get cut off when money in their accounts run out, leaving people in cold and dark homes.

Last year, Citizens Advice “saw more people coming to us because they couldn’t top up their prepayment meters than in the whole of the previous decade,” Moriarty said.  

For suppliers, however, it’s a guarantee they will fully recover their dues. But after a political backlash, regulator Ofgem toughened the rules to prevent prepayment meters from being forcibly installed in homes of severely ill people or those above 85 years old without any other support. 

Consumer advocacy groups want even stricter regulations. It’s left energy suppliers looking for ways to prevent a pile-up of credit.

“I think we are all full of scars at the moment with what’s happened,” supplier EDF Energy Ltd.’s CEO Simone Rossi said at a conference last month. “I would say the biggest scars are with British households because of the high prices and we are collateral damage in this process.”

Alternative Plans

An alternative for suppliers could be allowing the market to reignite competition that has been curbed by the government’s Energy Price Guarantee. While the program caps bills for consumers, companies are unable to offer prices below the limit because that would result in losses. 

To allow market forces to take over, wholesale prices that feed into bills need to drop below the cap, which is set to happen from July. Comparison website Uswitch said last month that retuning to competition could help with lower consumer costs.

Another way of preventing consumer debt from ballooning is a social tariff which Ofgem’s CEO Jonathan Brearley says the regulator are considering. This would help limit costs for vulnerable consumers, their bills subsidized through either targeted government support or by well-off customers.

The industry argues uniform support for consumers irrespective of economic status is not sustainable.

“Therefore it’s critical that we start working on what comes next,” said Energy UK’s Pinchbeck. “We need to work strategically with a big vision about what retail is for and on enduring policies where reforms are principled and forward facing and not knee-jerk or backward looking.”

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