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28 Apr 2019

Failed energy firms leave customers facing higher bills and missing refunds

Complaints come from customers whose gas and electricity accounts were transferred to new energy companies when theirs went bust

More than 800,000 energy customers have been moved to a new supplier in the past two years after 10 gas and electricity firms stopped trading. However, for some, their supplier's failure was only the start of their problems.

We've heard from customers who are frustrated at being left out of pocket. Some are surprised that their tariffs have increased compared with their old supplier, while others are struggling to get credit back from their former supplier.

Read on to find out which customers face the biggest bill increases, plus what to do to if your energy company stops trading. Know your rights if your energy firm goes bust.

What happens when an energy company goes bust?

When an energy firm stops trading, regulator Ofgem selects another company to supply its customers, through its Supplier of Last Resort process. It says that this is a competitive process during which it 'asks suppliers to bid to become the new supplier [u2026] to get the best possible deal for you in the circumstances'.

The process has been smooth for many customers, but we've heard from others facing hefty price hikes and missing refunds. Use the links to jump to read about:

Bigger energy bills

When Brilliant Energy, Economy Energy and Our Power stopped trading earlier this year, Ofgem announced in each case that customers would be put onto a 'competitive' tariff with the newly chosen supplier.

In fact, it later stated that customers were all moved onto the new suppliers' standard variable tariffs (SVT). These are rarely companies' cheapest deals.

SSE and Ovo (which took on Brilliant Energy and Economy Energy's customers) charge within £1 of the maximum (£1,254) permitted by the price cap on their standard tariffs.

Utilita put Our Power's prepayment customers onto its Smart Energy variable deal (where appropriate). This costs £2 less per year than the maximum allowed by the prepayment meter price cap (£1,242, which is also the price of its Premium Energy deal).

Tariffs up to £300 more than former firms' deals

Six months previously, Brilliant Energy was selling a one-year fixed deal costing more than £200 less per year on average for a medium user. Customers would still have been on this deal at the time the firm went bust. Our Power's cheapest prepayment tariff was £300 less per year. Economy Energy's only available tariff was £50 cheaper than Ovo's SVT.

'My new tariff was much more expensive than my old tariff'

Which? member Gerry Davey, who lives in Essex, found his energy bill was estimated at £155 more per year after he was switched to Scottish Power when Extra Energy went bust. He said: 'this was much more expensive than my tariff with Extra Energy and I was very unhappy about this'. 'I am completely up in the air about any credit owing from Extra Energy' and also does not know if he is in credit to Scottish Power. He has since switched to Shell Energy.

Not all customers face bigger bills

Though the three companies which most recently gained customers from failed firms put them onto their standard tariffs, priced close to the maximum allowed by the price caps, this hasn't always been the case.

Of the seven suppliers which stopped trading in 2018, none of those energy customers were put straight onto the new supplier's standard tariff.

Two firms honoured customers' existing tariffs, one firm twice put customers onto its cheapest deal, and three firms put customers onto special tariffs costing between £37 and £149 less per year than their SVTs for several months.

Why new companies often charge more than failed suppliers

Ofgem's website explains that, with a new supplier, 'your bills may go up because 'deemed' contracts - a contract you haven't chosen - can be more expensive. But Ofgem will try to get the best possible deal for you'.

Deemed contracts can be costly for a supplier to provide because it takes on more risk by buying extra wholesale energy for new customers at short notice.

In contrast, many failed suppliers sold cheaper deals to attract customers to join them. If these deals were 'loss-leading' (that is, sold at less than the cost of supplying them to customers) then it may not be financially sustainable for other suppliers to charge the same rates.

This is a practice that Ofgem is cracking down on in its tougher tests for new energy suppliers from June this year.

Ofgem's policy on deemed contracts states that 'a failed supplier's customer should not generally expect to be protected from paying increased prices'. Its priority is to ensure your gas and electricity supply continues when a firm goes bust.

What to do if you're paying too much with your new supplier

Once you're on supply with a new company, you should ask to be put onto its cheapest deal for you. This will ensure that you're not paying its premium rates.

However a company's cheapest deal can be much pricier than the cheapest deal on the market. Compare gas and electricity prices using Which? Switch to find the best deal.

Make sure you take companies' customer service into account, as well as price, when you're choosing a new energy supplier. Bad customer service will leave you frustrated again, while some firms we've revealed to have poor customer service (Economy Energy and Extra Energy for example) have later stopped trading.

See the best and worst energy companies for 2019, from the latest Which? survey.

Missing refunds

Ofgem guarantees that the chosen new supplier will honour current and former customers' outstanding credit balances. So you shouldn't be left out of pocket, even if you switched away.

It says you shouldn't need to contact the new supplier about this; it will contact you. Ofgem doesn't set a timescale for you to get your money back, as each situation is different, though aims for suppliers to refund credit balances 'as quickly as possible'.

However, we've heard from customers left waiting for refunds months after their supplier stopped trading, or who don't even know how much they are owed.

'I'm still owed approximately £1,000'

Which? member Mrs Buckland switched away from Economy Energy while it was still trading and believes she is still owed approximately £1,000. She took her case to the Ombudsman after difficulties getting a final electricity bill or credit refund after switching. Its decision was that Economy must produce a final electricity bill and refund credit owing, plus £75 compensation. But just days later Economy Energy stopped trading - without producing a final bill or paying.

Three months later, Mrs Buckland is still waiting to find out when and if Ovo will refund her credit. She said: 'I only want, and am entitled to, the full credit balance on our account. Ovo says it is still waiting for a final bill from Economy Energy, which the Ombudsman said should have been produced and repayment of credit should be made within 14 days of that. This means we should have been repaid by Economy Energy by the end of October. It is now the end of March.'

Ofgem monitors the process of all suppliers which have taken on customers of failed firms, including refunds of credit balances. It said: 'In some cases, it is taking longer than we would expert for the new supplier to process this payment, usually related to the quality of the data of the failed supplier - we are working with suppliers to speed this process up.'

Scottish Power's website states that it has 'taken longer than we anticipated' to transfer customer accounts from Extra Energy, though the majority are now set up. It explained that Extra Energy's administrators, PWC, 'need to finalise customer bills' from before Extra Energy stopped trading and 'this process is ongoing'.

What to do if you haven't had a refund

If you feel your refund is taking too long, you can complain to the new supplier, following the process on its website. The company will usually have to contact the administrators of the failed firm to confirm how much you are owed. If its records were poor, this can take time.

However if you are owed compensation following a complaint to the Ombudsman, the new supplier will not pay it. Instead you should contact the failed firm's administrators (Ofgem publishes contact details, once appointed).

Smooth switches for customers of failed firms

It's not all doom and gloom however. We've also heard from those who have found the process of being transferred to a new supplier stress-free and even beneficial.

'The transfer was really smooth'

Former Iresa customer Ben Lynch said that he switched to Iresa as it was the 'cheapest supplier I could find'. About a week after Iresa stopped trading, he found out that Octopus Energy was taking over.

He said: 'The transfer was really smooth and I only had to provide a meter reading from a certain day for both electricity and gas. The price was the same, and has not gone up since. I'm really happy with Octopus and was pleased to see they were a recommended provider once the transfer had happened. There has been no problem with my supply and the direct debit was transferred without any issue.

'I had a very small amount of credit (I think about £5) and that was taken over by Octopus. There were no issues there.'

Also, customers of some failed suppliers with poor customer service have been moved to suppliers providing a better standard of service.

For example, Economy Energy, Extra Energy and Spark Energy would all have been rated in the bottom eight-scoring suppliers in our 2019 Which? energy companies satisfaction survey. Originally this rated 32 energy firms (before some stopped trading). Customers from Economy Energy and Spark Energy are now with much higher-rated energy firms.

Iresa was banned by regulator Ofgem from taking on new customers, or increasing prices, at the time it went bust - thanks to customer service issues.

Its customers were transferred to Octopus Energy, which is currently the only Which? Recommended Provider for energy.