Two weeks into this year, the first energy supplier of the year collapsed. TogetherEnergy and its subsidiary brand, Bristol Energy, ceased trading – impacting collectively over 176,000 customers. The total number of UK energy suppliers to fall over the last year is up to 30 – with more expected over the next year. An article in The Telegraph reports more than half of Britain’s remaining small energy suppliers are also at imminent risk of collapse. 

It has been well-documented that the huge rise in wholesale natural gas prices (which have climbed six-fold), the energy price cap, and after-effects of the COVID-19 pandemic, have all had parts to play in this mass force-majeure.

The UK’s unique price regulation system, which ultimately aims to keep energy bills affordable for citizens, has also depleted profit margins. This perfect storm of circumstances has forced many closer to the poverty line.

The UK’s insolvency practitioners (IPs), regulators, and politicians are apparently in urgent conversation around remaking the entire system.

But what is the insolvency process when energy firms going bust, and what happens to customers?

Supplier of Last Resort (SoLR)

Given that the loss of access to gas and electricity has a significant impact on citizens, regulatory processes exist to ensure the provision of crucial supplies continues. When a firm begins to face insolvency, they must liaise with the UK’s energy regulator, Ofgem, which offers two routes to ensure the continued supply for customers.

This regime can be invoked by Ofgem in the first instance as an alternative to a Special Administration Regime (below). The SoLR process is Ofgem’s initial method of ensuring the supplies of customers are protected throughout the full insolvency process.

Simply put, as per the name, SoLR means another energy supplier can either volunteer or be directed to take on the customers of the insolvent energy company with the aim that a seamless transfer can be carried out. Ofgem can direct any available energy supply licensee to take over responsibility for the failed supplier’s customers.

Once this has happened, the insolvent company is no longer a regulated company, and is placed into an ordinary administration or other insolvency process. The SoLR and administrators begin collecting any debts which remain with the company.

Energy Supply Company Administration (Special Administration Regime (SAR))

When an SoLR is not feasible, particularly if the customer base of a firm is far too large to be easily transferred to another firm, Ofgem can seek to place the company into an Energy Supply Company Administration.

This regime was established through the Energy Act 2011 to ensure that if a larger energy supplier was in financial difficulty, it could continue trading normally, potentially with financial assistance from the Government until it is rescued, sold, or its customers transferred to other firms.

This regime differs from the typical insolvency process, as laid out in the Insolvency Act 1986, which prioritises the return of value to creditors in the case of insolvency. Sectors such as the energy, water, and transport sectors take exception to this, as public interest overrides the duty to maximise returns to creditors.

What does this mean as a customer?

The priority of the Government, Ofgem, and the UK’s energy suppliers remains with ensuring energy supply to its customers will not be interrupted. In the case of a crucial energy provider collapsing, these three parties will focus on choosing an alternative solution – through the SoLR or SAR regimes – to ensure customers are not impacted.

Listed in the Legal 500 for two years running as a ‘Recommended Lawyer’ and ‘Next Generation Lawyer’, our Insolvency Solicitor, Lisa Cooke, acts on behalf of Insolvency Practitioners in our Insolvency Litigation Team.

Get in touch with one of our insolvency and financial litigation specialists.