Energy supplier collapses to cost households £85 each, Ofgem warns

For free real time breaking news alerts sent straight to your inbox sign up to our breaking news emails

Sign up to our free breaking news emails

Please enter a valid email address

Please enter a valid email address

SIGN UP

I would like to be emailed about offers, events and updates from The Independent. Read our privacy notice

UK households will pay an extra £80-£85 on their energy bills next year after a surge in gas and electricity prices that has resulted in the collapse of 25 suppliers, industry regulator Ofgem has warned.

The watchdog said that the estimate should be treated "with caution" and could go up or down depending on wholesale gas prices.

Documents filed in court proceedings relating to Bulb's collapse also revealed that the UK's seventh largest energy supplier was placed into a special administration despite cheaper options being available.

It estimated that the cost of finding another firm to take on Bulb's customers would have been £1.28bn, as opposed to £1.7bn for the special administration. The government insists that the £1.7bn has been set aside to cover estimated costs and the funds will only be drawn down as necessary.

Ofgem said it had not opted for the cheaper process, known as supplier of last resort (SOLR), because it was concerned that another firm would not be able to cope with the rapid switching of Bulb's 1.6 million households.

Failure to switch customers over to a new supplier could have resulted in Bulb's bankruptcy, the regulator said. Instead, Bulb is being managed by administrators from consultancy firm Teneo who will work with the regulator and government to find an orderly resolution.

Bulb became by far the largest company to fall victim to an energy supply crisis sparked by soaring gas and electricity prices. It was put into a special administration process last month after admitting that it could no longer afford to supply its customers.

Households on standard variable tariffs and pre-payment meters have already seen their energy bills jump 12 per cent in October with a further increase of hundreds of pounds a year expected in April when the energy price cap is next reviewed.

Around 2.5 million customers have so far been switched to new suppliers after their previous one failed.

The ongoing crisis affecting UK energy suppliers has raised questions about energy regulator Ofgem’s oversight of the market.

As part of government plans to increase competition in a market that had been dominated by the “Big Six” energy firms, the regulator relaxed its rules for allowing new suppliers to be set up.

Critics of that approach have said that Ofgem should have taken a more stringent view on the amount of capital firms must set aside as a buffer against the risk of higher prices.

Smaller firms that have collapsed in recent weeks have argued that they were well run but could not possibly have coped with continuing to supply customers with energy for less than it costs to buy on wholesale markets.

Analysts forecast that gas prices will remain substantially above the levels seen earlier this year. A range of factors have pushed prices higher, including high demand in both Europe and Asia last winter and a lower than expected flow of gas from Russia.

An Ofgem spokesperson said the regulator had kept “disruption and costs to customers to a minimum”.

They added: “We know that people are struggling with costs and any additions to bills are unwelcome. The current £80-£85 estimate of costs per household should be treated with caution. It will continue to move up and down into next year as global gas prices remain volatile.”