Research by Which? found that of the 925,000 energy customers whose supplier failed in the past 18 months, more than a quarter – 283,000 – were shifted onto ‘rip off’ standard variable tariffs.
When a firm goes bust, customers are moved over to a new supplier chosen by the regulator Ofgem.
Firms acting as a ‘Supplier of Last Resort’ play an important role in making sure customers continue to receive their gas and electricity supply.
However, the current system is failing consumers, Which? warns, with consumers facing a lottery as to whether they are moved onto one of the cheapest or most expensive deals on the market.
Ten energy suppliers have gone bust since February 2018, with three of the Suppliers of Last Resort putting customers straight onto a standard variable tariff, which are typically the most expensive deals on the market.
Brilliant Energy and Northumbria Energy’s 17,000 customers were moved onto SSE’s standard variable tariff, which at £1,253 a year was £1 less than the maximum permitted by the price cap.
SSE told Which? these customers faced price increases of 38 per cent on average.
Meanwhile, a total of 235,000 Economy Energy customers were moved onto Ovo Energy’s standard variable tariffs and 31,000 Our Power prepayment customers went onto Utilita’s Smart Energy variable deal.
Not all Suppliers of Last Resort put customers onto standard variable tariffs with some, including Octopus Energy, moving customers onto their cheapest tariffs.
Threat of bailiffs
The knock-on effects of an energy firm going bust go much further than sudden price increases for customers, according to Which?.
Some customers have reported being threatened with bailiffs over debts owed to a failed supplier, while all consumers face paying more to cover industry-wide costs when businesses go under.
Which? is calling on Ofgem to ensure its new tests for suppliers – due to start this week on 5 July – are sufficiently stringent that they prevent so many weak and unfit firms from entering the market if they cannot sustain prices and customer service levels.
The ongoing reforms for existing energy firms must also ensure current suppliers’ financial positions are sustainable, the consumer group said.
Natalie Hitchins, head of home products and services, at Which?, said:“It’s wrong that energy customers face a lottery when their supplier goes bust – and that those who have followed advice to do their research and shop around for a better deal can be hit with such substantial price hikes.
“Ofgem must ensure its new checks are sufficiently robust to bring an end to this cycle of supplier failures, and alongside the government should explore ways to lessen the financial burden and make the process easier for consumers when energy firms collapse.”