Who pays for lost credit balances at failed energy companies? We all do | Nils Pratley

A sizable chunk of consumers’ credit has gone missing but just how much is not yet clear

One detail within the hike in energy bills hasn’t received enough attention. While the surge in wholesale gas prices is, by a wide margin, the biggest driver, let’s not overlook the contribution from the cost of clearing up the mess of 29 corporate failures in the sector. Those costs also fall on customers.

The infuriating element is charges for lost credit balances – in other words, money taken from customers via direct debit that should have been in place when a supplier failed. In practice, sums have been missing in many instances. Some companies, it seems, have played fast and loose with their working capital arrangements.

Customers of the failed companies do not lose a penny when they are transferred to a new supplier via Ofgem’s “supplier of last resort” mechanism, it should be said. Instead, the missing balances are replaced, as it were, via charges on everybody’s bills. In effect, we all pay for the missing millions.

How much are we talking about? So far, not much: only £2.45 per customer (or about £54m in aggregate) was included within the £68 “supplier of last resort levy” that formed part of last week’s near-£700 hike in the price cap. The bulk of the levy covered new suppliers’ weightier costs of buying energy for customers who arrived unexpectedly.

But the full extent of the missing balances is still to emerge as numbers are reconciled with administrators’ reports and so on. By the end of the process, we could be talking about serious sums.

Chris O’Shea, chief executive of Centrica, owner of British Gas, estimated last October that almost £400m of customer credit had gone. But that was at a point when only 15 rivals had failed. The figure, almost certainly, will be higher now. If these were banks collapsing without customers’ deposits, argued O’Shea, it would be “a national scandal”. Spot on.

It’s not as if Ofgem was unaware of the danger. In March last year – so a few months before gas prices surged – the regulator announced it was “concerned that some suppliers may use customers’ surplus credit balances to fund otherwise unsustainable business practices”. That concern was well founded: the predictable car crash happened.

MPs on the business and energy select committee could usefully try to force more transparency when Ofgem chief executive, Jonathan Brearley, is one of their witnesses on Tuesday. A few questions: what’s a fair estimate of the missing balances? Is there any hope of recovering any? Why did Ofgem not insist on hard ring-fencing rules years ago? And why will it take until spring to design proper protections?

Elliott wise not to blow the Taylor Wimpey house down

Whatever you do, don’t appoint an insider as your next chief executive, advised Elliott Advisors. Taylor Wimpey has ignored the instruction from the supposedly fearsome New York activist hedge fund. Jennie Daly, currently operations director, will succeed long-serving Pete Redfern, becoming the first woman to lead a major UK housebuilder.

In the circumstances, Elliott’s reaction was almost gentle. It said it expects to see Taylor Wimpey “take the necessary steps to deliver improved value for shareholders”, which could be said of almost any company at any time. It now sees the appointment of new non-executive directors as “critical to this process”.

Elliott’s restraint is sensible. Boards propose chief executives and there’s no mileage in disputing the principle, especially when you’re merely a “top five” shareholder and decline to say how much you actually control. Besides, Daly, despite her low profile, may turn out to have ideas that Elliott likes.

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The demand that it had absolutely had to be outsider was always odd if Elliott had nobody particular in mind. Certainly one name touted by others, Dave Jenkinson, was a non-starter. As deputy to £75m boss Jeff Fairburn at Persimmon, he collected £40m a few years ago from the same wildly over-the-top incentive scheme. Taylor Wimpey, underperformer or not, didn’t need that cure.

Clear-out at LV=

Alan Cook’s position as chairman of LV= has been untenable for a while. The moment came last December when he failed to get sufficient backing from members of the mutual insurer for a takeover by private equity firm Bain Capital. A boardroom clear-out, which swept away half its members on Monday, was inevitable.

The survivor is chief executive Mark Hartigan, presumably because somebody has to run the shop while talks take place with fellow mutual Royal London on an alternative deal. If the new negotiations don’t work out, however, incoming chair Seamus Creedon would be well advised to rethink his loyalty to Hartigan – the Bain fiasco was as much his as it was Cook’s.


Nils Pratley

The GuardianTramp

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