The Government has announced its intention to set up a contingency plan to deal with the possibility of one of the UK’s ‘Big Six’ energy companies going under. The cost recovery programme, outlined in an Energy Department consultation paper, is designed to lessen the economic and consumer impact that would arise in the event of company insolvency. According to the Telegraph, the implementation of the proposed rescue plan could leave consumers with an additional bill of £4bn.
What is being proposed?
Under the Government’s current provisions, if one of the UK’s six biggest energy providers were to go out of business, the gap left in the energy market would need to be filled by other providers, leaving the market in an unstable position. As a result, there would be no way for the Government or Ofgem to control the costs passed on to the customer. Therefore, to avoid an energy crisis, the Government plans to rescue any of the Big Six that becomes in danger of going bankrupt.
How likely is collapse?
The likelihood of one of the Big Six collapsing is currently very small, and there are no present concerns about the future commitments of the foreign-owned energy groups (EDF, E.ON, Npower and Spanish-owned Scottish Power). It seems that the Government is merely taking action to avoid another disaster like the banking crisis. In reality, most of the large energy companies are doing very well. For instance, Centrica, owner of British Gas, is predicted to announce a 15% rise in profit for 2012 later this month. Meanwhile, EDF has reported a 7.5% (£1.7bn) rise in profit for 2012, despite increasing the bills of its 3.7million home customers by 10.8% last December.
How might this impact consumers?
In order for the Government to keep a sinking energy company afloat, it needs money. The Energy Department says that in the worst case scenario, home bills could increase between £7 and £32 on average every year – reaching a potential £4bn total when factoring in the UK’s 25.5million households. Given recent rises in energy bills, along with rises in energy company profits, the principle underlying these plans will undoubtedly ruffle a few consumer feathers.