‘Let us charge more for energy’, companies urge as they are forced to bail out a string of small suppliers

The government must let energy suppliers charge more as they are left picking up the pieces from a string of failed rivals, two major players have said.

Big Six energy firm Eon and Britain's largest challenger Ovo today called on the the competition regulator to change the way the price cap for prepayment metres works.

They want the Competition and Markets Authority (CMA) to include more headroom for so-called supplier of last resort (SoLR) payments, which companies incur to cover the cost of rivals going out of business.

“The costs of administering the SoLR prices within companies are not accounted for within any price cap mechanism and must come out of the already inadequate level of headroom,” Eon wrote in a letter to the CMA.

When a company goes bust Ofgem selects a replacement supplier, but some costs are shared between the rest of the market. 

A record number of suppliers entered Ofgem's SoLR process last year, burdening their peers who had to ensure customers were not overcharged and that their energy supply was not interrupted.

A further two suppliers have gone bust since the beginning of the year, sparkling fears of another difficult 12 months for smaller firms.

Ovo Energy said it would “urge the CMA to assess how additional costs incurred in event of supplier of last resort can be added to the cap.”

The prepayment metre (PPM) price cap was introduced in 2017, limiting the amount suppliers can charge domestic customers.

The rate will increase to £1,242 for an average-use customer at the beginning of April. However, this is £12 below those on standard variable tariffs. Ofgem, which sets the SVT cap, said it would make sense for both rates to be calculated in the same way. 

“Put bluntly, if the PPM cap is not reviewed ass matter of urgency, there are likely to be further supplier exits,” said supplier Utilita.