Insolvency (Moratorium) (Special Administration for Energy Licensees) Regulations 2020

Lord Stevenson of Balmacara Excerpts

Friday 9th October 2020 Lords Chamber

[Lord Stevenson of Balmacara (Lab) [V]]

My Lords, I thank the Minister for his introduction to this SI. Insolvencies of energy companies have occurred in increasing numbers in recent years. They have a number of causes, but does the Minister agree that they include: undercapitalisation of new entrants to the supply market; overoptimistic plans for growth in new customers; and inadequate provisions of levies and other requirements on energy companies that are part of the funding landscape? Five relatively small energy providers, with fewer than 200,000 customers, went bankrupt last year and since 2016 a total of 13 companies, some of which were considerably larger, have gone under.

As the Minister said, the SI modifies the working of the moratorium regime in Part A1 of the Insolvency Act 1986 in respect of particular energy companies involved in the provision or distribution of gas, electricity and smart meter services. The key provision that the SI introduces will require struggling companies to notify the Department for Business, Energy and Industrial Strategy that they are in a moratorium, so that the Secretary of State can consider whether to apply for a special administration order that would enable Ofgem to protect continuity of supply and, if appropriate, commence proceedings for the transfer of supply to another company through the supplier of last resort proceedings.

Standing back from this process, in effect it is equivalent to a successful competitive bid from another energy company for the customers of a failed company, with provisions about continuity of tariffs, prices and so on being part of the bid process. The company taking over other companies may of course be compensated for the work involved in doing so through payments spread across the sector. But because of the risk of a high number of sizeable companies going bust, these payments have become a real source of concern for otherwise stable energy companies which find themselves having to underwrite payments for failed companies that may previously have tried to undercut them with cheap but unsustainable customer tariffs. Can the Minister confirm that this issue is being kept under review?

A related concern appears to be borrowing to fund the levy payments of troubled companies, as they are using the sums required to pay these levies to keep themselves afloat. In 2019 we lost eight domestic energy suppliers, meaning that half a million customers were moved to suppliers that they had not picked, with 87% ending back at one of the big six companies. Are the Government considering short or long-term changes to the conditions for payment of these levies by energy companies, in the light of this year’s circumstances?

A combination of the energy price cap, the effects of Covid-19 and the imminent emergence of this year’s levy payment point may cause a further number of energy companies to go under this year—perhaps the Government are effectively acknowledging this through the SI. Can the Minister tell the House how many companies he anticipates may become insolvent this year, and distinguish between those companies that are in difficulty because of immediate problems and those in difficulty because of their own business models and poor management of liabilities?

My party has always supported a competitive energy market that provides cheap and reliable services to customers, but this cannot be at the expense of letting consumers have rights of access to the essential energy provisions that they need. I look forward to the Minister’s response.