Energy price set to rocket due to crisis

Failure of gas companies leaves UK's poor with difficult choices this winter

The cost of keeping warm this winter will skyrocket in the United Kingdom because of fast-rising natural gas wholesale prices that have caused a flurry of energy companies to fail.

The Guardian newspaper said the nation's poorest households will face difficult decisions after bills rise by an anticipated 30 pounds ($40) a month, in part because of the failures.

"Overnight price hikes will be a shock for more than a million households whose energy companies have gone bust," the paper quoted Clare Moriarty, chief executive of Citizens Advice, as saying.

She added that the rising cost of household energy will be compounded by the end of the 20-pound-a-week payment the government had been directing toward poor families in the form of a universal credit top-up.

"We're particularly worried about those who'll face desperate choices this winter because of the cumulative impact of soaring bills, the planned cut to universal credit, and inflation," Moriarty said.

Citizens Advice, which offers free legal expertise to people who might otherwise struggle to pay for lawyers, wants the government and Ofgem, the nation's gas and electricity market regulator, to guarantee that the cost of moving to a new energy supplier, for people who had been with a failed company, will be mitigated by the taxpayer.

"People on the lowest incomes should be able to access emergency winter grants, so they can stay warm in the cold months ahead," she said.

With three UK energy companies going out of business on Wednesday and a total of 12 having closed this year because of rising wholesale gas prices that are three times what they were at the start of the year, as many as 2 million gas customers have been forced to move to new providers.

While the new providers are capped in terms of what they can charge new customers, people are typically paying 30 pounds a month more for energy than they did to the failed providers.

Additionally, research published by Investec this week said the cost to the larger companies of rescuing customers from failed providers will eventually result in a levy being placed on all gas and electric customers, of around 30 pounds.

The Daily Mail reported that Investec said the total cost of rescuing the customers of the first seven energy companies that failed amounted to 820 million pounds.

With so much uncertainty, the BBC quoted Neil Lawrence, a director of Ofgem, as saying: "We know this is a worrying time for many people and news of a supplier going out of business can be unsettling. I want to reassure customers … they do not need to worry. Under our safety net, we'll make sure your energy supplies continue."

Lawrence said people will also be able to take any credit they have built up with a failed company to a new supplier.

The Financial Times newspaper said Ofgem has warned energy companies they have an obligation to continue to provide energy to their customers under the terms of their contracts.

The regulator has written to energy suppliers to say it will work with the police and the UK's fraud authorities if it suspects providers have contributed to a "material worsening" of their financial position.

The warning came after reports surfaced of smaller, cheaper energy providers failing because of weak business models and inadequate hedging strategies.

Ofgem said companies must not exit "the market in a disorderly fashion" because that has a knock-on effect on customers and other providers.