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September 30, 2021

UK energy regulator warns against corporate looting during gas crisis

Ofgem said it would work with police to prosecute directors who cause “material worsening” of company finances.

By Matt Farmer

UK energy regulator Ofgem has written to utilities, warning directors against stripping assets from failing companies. In the email, head of retail Neil Lawrence said that the regulator would work with police to prosecute directors who cause “material worsening” of company finances. 

Lawrence reminded companies of the need to minimise costs that could be passed on to consumers after a bankruptcy. He wrote that utilities should not take actions “that could reasonably be seen to result in a material worsening of a supplier’s financial position, increase of the risk of that supplier exiting the market in a disorderly fashion, or increasing the costs at risk of being mutualised across the sector. 

The email warned that those involved in looting the assets of failing companies would face the “full extent” of Ofgem’s power. This may involve action from the Police, the Action Fraud crime unit, or the UK’s Insolvency Service. 

This email accompanied a short questionnaire asking utilities about their finances. Respondents were asked to confirm that their assets exceeded their liabilities over the last month, alongside 11 other questions. 

Ofgem told The Financial Times that the email and questionnaire formed part of its strategy to protect consumers from unnecessary costs. 

Utilities received the letter one day before three more small utilities announced bankruptcy. On Wednesday, Igloo, Symbio Energy, and Enstroga Energy all announced bankruptcy as a result of huge wholesale gas prices. These utilities served 233,000 customers in total. In total, 10 UK utilities have now declared bankruptcy in September, bringing the number of customers affected to 1.73 million. 

Since the first bankruptcies, gas prices have continued to climb. Day-ahead wholesale gas contracts now sit at more than £1.50 per therm, a record high. This contrasts with the approximate £0.35 cost at the same time last year. 

Wholesale prices for gas delivered in winter have seen a more fearsome rise. During this year, prices have risen from less than £0.50 per therm to more than £2.00. While the cap of consumer tariffs will rise from Friday, it will not cover the costs of new gas purchases. 

Ofgem has put an administrator service on standby as a precaution against the failure of a larger utility. This would leave a large amount of customers stranded; possibly too many to switch to a last-resort supplier.

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