Households tempted by the promise of low prices if they switch to an unknown gas and electricity supplier have been warned not to run up big credit balances, in the light of the collapse of GB Energy.
Last weekend the company, which had 160,000 customers, became the first domestic energy company to cease trading since 2008. With it blaming its failure on a big jump in wholesale prices, experts are predicting it won’t be the last supplier to leave customers in the lurch this winter.
Increasingly, price comparison websites’ lists of cheapest tariffs are almost exclusively topped by names few will have heard of. In the past two years there have been a host of new entrants offering prices substantially below those charged by the big names.
Joe Malinowski, who runs price comparison website TheEnergyShop.com, says the question is not if others will follow GB Energy, but how many?”
“When switching to a smaller supplier, do your research and make sure you understand the risks. Stay clear of those that take payments in advance. Check your credit balance regularly and ask for a refund if it gets too large.”
Mark Todd, who runs rival switching site Energyhelpline.com, says no consumer should be running a credit of more than 20% of their annual consumption – but that is particularly true if they are signed up to a small firm.
Domestic energy customers can often be hundreds of pounds in credit at this time of the year, as they plan for their bills to be much higher during the peak winter period. “The spike in wholesale costs has left any firm that was not ‘forward buying’ looking very vulnerable, particularly if we have a cold winter and wholesale prices continue to rise,” says Todd. “If you’ve run up a big balance, ask for some if it back – and lower your direct debits.”
But he adds that customers who moved to an unknown firm don’t need to panic as protections have been put in place by energy regulator Ofgem to come to their aid if a supplier goes bust.
Last month it announced it had implemented a safety net to guarantee customer balances, and within three days of GB’s failure it appointed Co-operative Energy as its chosen “supplier of last resort”. This will see GB Energy customers switched en masse, and they have been assured that the Co-op will be honouring any credit balances. The company has also surprised observers by offering the same tariff terms as charged by GB Energy.
The cost of protecting the credit balances will be partly met by Co-operative Energy, with the rest being covered by Ofgem from a fund built up from a levy spread across all energy suppliers. If further suppliers fail then the same process will come into play, Ofgem has said.
Meanwhile, questions remain as to how well the switch of GB Energy customers will be managed, given that Co-operative Energy has in effect added another 75% of customers overnight. Just last month, Ofgem forced the firm to pay £1.8m compensation for customer service failings. A new IT system had left households being unable to log into their accounts, submit meter readings or check their bill – and the complaints rolled in.
“The best that can happen is that things go smoothly,” says Malinowski. “The worst doesn’t bear thinking about. If I was a GB Energy customer I would not be keeping my fingers crossed hoping for a miracle. There are cheaper and safer options with other energy suppliers. Time to switch. Seriously.”
Big freeze in prices for the winter
British Gas and e.on have become the latest of the “big six” energy suppliers to say they are freezing standard gas and electricity tariffs this winter.
British Gas says the move will provide peace of mind for more than six million customers, and follows similar action by SSE, which confirmed it will cap standard household tariffs until April 2017. British Gas said the fact that it had “forward bought” its energy had allowed it to make the announcement.
However, MoneySavingExpert Martin Lewis warned consumers not to be taken in by the claim. “If you are on the British Gas standard tariff, like all big six standard tariffs you are already massively overpaying. For someone on typical use, you’re paying £1,040 a year.
“If you’re willing to change company, the savings are getting on for £180 a year at typical usage, and much more for many customers who have bigger bills. And those tariffs are one year fixed, so they’re cheaper and you’re locked in with a guarantee of no hikes for far longer,” he says.
The independent green supplier Good Energy was the first company to announce a winter price freeze back on 19 October.
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