Energy suppliers face an increase in bad debts

UK energy regulator Ofgem’s decision to raise the cap on energy prices paid by consumers by 80% to £3,549 makes bills even further out of reach for many people and also increases the risk of credit incurred by suppliers such as Centrica (CNA), EDF (FR:EDF) and Scottish Power Retail, ratings agency Moody’s Investors Service said.

Higher energy prices, combined with broader cost-of-living pressures, “raise the risk of energy providers incurring bad debts from residential and commercial customers,” said Graham Taylor, vice president. -senior president at Moody’s.

Centrica, which owns the UK’s largest energy supplier British Gas, enjoys some protection through its remaining stake in gas producer Spirit Energy, but its supply arm operates on fairly thin margins . It made an operating profit of £118million on its home and business customers last year and said every 1% increase in bad debt reduced that number by around £19million, according to Moody’s .

Centrica has increased its provisions for bad debts and pledged this week to donate 10% of any profits made to a relief fund for customers in difficulty.

The increase in the cap reflects rising wholesale gas prices, which are about ten times higher than before the start of the last crisis, said Dan Alchin, chief regulatory officer of Energy UK, an industry body representing suppliers.

“These costs are beyond the control of retail energy providers who have to recoup them,” he said, adding that 30 companies in the market had gone out of business over the past year.

So far, the government has pledged to fund a £400 cut on residential fuel bills over the next six months, along with additional payments of £150-£650 to struggling households. While chancellor, Tory leadership hopeful Rishi Sunak considered a windfall tax on public services, but did not introduce the scheme. Neither Sunak nor Liz Truss, the frontrunner to be the next prime minister, has presented detailed plans to help struggling people and businesses. .

“The government’s support package is helping at this time, but it is clear that the new Prime Minister will have to do more to deal with the impact of the price rises to come in October and next year,” said Ofgem chief executive Jonathan Brearley.

Earlier this month, Ofgem announced it would update its price cap reviews quarterly rather than every two years, to reduce the risk of further supplier failures.

Consultancy Cornwall Insight has predicted the cap will rise further to £5,386 next January and to £6,616 by April.

Carol M. Barragan