UK gas crisis: dozens of power companies face bankruptcy threats

Archive image of a warning label in front of a gas meter on a home in Manchester, UK. September 18, 2021. REUTERS / Phil Noble / Archive

The global increase in the price of gas has caused a particularly deep crisis in the UK market, where power companies cannot pass on the entire rise in wholesale prices to consumers and dozens of them face the threat of bankruptcy this boreal winter.

Nine companies have collapsed since the beginning of the year, a period in which gas has risen 250%. Some of them were modest distributors with just a few thousand customers, but in total 1.9 million consumers have seen their energy company go out of business since January.

The sector, in which some 40 active domestic operators are maintained, requires the Government emergency measures and a plan to continue serving customers who lose power, many of which take advantage of rates that will not be profitable for companies.

What is the limit of the price of energy?

The conservative government of former Prime Minister Theresa May introduced in 2019 a maximum ceiling on the price that can be charged for energy at the standard rate.

La ex primera ministra del Reino Unidi Theresa May.  Geert Vanden Wijngaert / Bloomberg
La ex primera ministra del Reino Unidi Theresa May. Geert Vanden Wijngaert / Bloomberg

The public regulator of the sector (Ofgem) stipule twice a year (April and October) that maximum limit, which this fall-winter season will be 1,277 pounds per year (1,747 dollars), 22% more than last year, but far from the increase in wholesale costs.

Traditionally, utilities offered cheaper contracts than the standard rate to their customers, but the gas crisis has made British consumer associations recommend considering the possibility of availing themselves of the general tariff, with a limited price.

Despite pressure from the sector, the Government assures that it has no plans to expand the spending ceiling. The industry has warned that under these conditions only a dozen power plants could be left standing by the end of the year.

Can the Government rescue the electricity companies?

The conservative Executive has assured that it will not rescue the failed companies. “Taxpayers cannot be expected to take responsibility for companies with poor business models and that have no resistance to price fluctuations,” said the Minister of Business and Energy this week, Kwasi Kwarteng.

British Prime Minister Boris Johnson in a file image.  EFE / EPA / NEIL HALL
British Prime Minister Boris Johnson in a file image. EFE / EPA / NEIL HALL

The minister considers that this is a normal scenario in a highly competitive market and has stressed that It is expected that more companies will stop operating in the coming months.

However, the Secretary of State for Companies, Paul Scully, went something further and advanced that the Executive has begun to work on possible solutions to deal with the “worst case scenario”, if this occurs.

Asked about when those contingency plans would be activated, Scully said the red light will come on if the crisis “extends beyond a short peak” in the price escalation.

Can a “bad bank” of customers be created?

The two main measures under study are the approval of publicly backed loans for utilities taking on unprofitable customers, or the creation of a “bad bank” to absorb consumer portfolios left by bankrupt firms, a structure similar to those created during the 2008 financial crisis.

FILE PHOTO: The sun rises behind pylons near Chester, northern England, on October 24, 2011. REUTERS / Phil Noble
FILE PHOTO: The sun rises behind pylons near Chester, northern England, on October 24, 2011. REUTERS / Phil Noble

It has also been suggested that the Ofgem assumes the administration of insolvent firms, which in practice would amount to their nationalization.

The Executive and representatives of the industry have held various meetings in recent days, although a specific roadmap has not yet been made public.

How does the crisis affect consumers?

The energy regulator stresses that Consumers will continue to receive uninterrupted gas and electricity supplies even if your company stops operating. The Ofgem will automatically transfer your contracts to a new provider, although the process may take several weeks.

Near 15 million households in the UK take advantage of the standard energy tariff or prepaid contracts, formulas that govern the maximum price ceiling established by the public administration.

(With information from EFE)

KEEP READING:

Leave a Comment

This site uses Akismet to reduce spam. Learn how your comment data is processed.