Who would pay for an energy company bailout? You already know the answer to this one…

11 February 2013

Remember when the banks went bump? How all of us lucky taxpayers had to bail out the banks because they were ‘too big to fail’. Not that they weren’t too big to coin it in with years of bumper profits beforehand though eh? Now, it seems the Government has learned that preparation is everything and they have decided to implement a new ‘recovery mechanism’ should one of the larger energy companies fail, and this time it’s not going to be paid for by the taxpayer. It’ll be paid for by energy consumers instead.

The details of the scheme can be found in a consultation document, open for comments until 15 March. However, the Government are not seeking views on whether to implement such a scheme, rather on some specific elements of how it will work in practice. As far as the Government is concerned it is a no-brainer. If an energy company fails, the buck stops with Government who would need to pay for the failure by raising taxes or cutting spending, neither or which are particularly popular plans. Under the new scheme, energy users will see their bills rise by “between £7 and £32 per annum (2010 prices), on average, over a five year payback period.” It’s a worst-case scenario, but this means each householder could end up paying over £150 to bail out private profit-making companies. Perhaps it wouldn’t seem as bad if we ever saw energy companies bailing out privately- owned households who don’t have the cash to pay their energy bills.

The Government’s argument is that, particularly with the Big 6 energy monopoly in this country- covering 99% of supply- should one large supplier fail, the subsequent demand on the other suppliers would be severe and would probably cause energy prices to rise anyway. But why should we have to help out energy companies who are more than happy to pocket profits during the good times? Wouldn’t it make more sense for these profit-making companies to put money into a sink fund for just such an extremely unlikely occurrence instead? Oh, the joys of privatisation of public services…

An Energy Department official said: “It is extremely unlikely that any of the large energy suppliers in the UK would become insolvent. None the less, the Government believes that it is prudent to have in place a framework that will ensure the continued operation of a major supplier until its customers can be transferred to other partners.”

Heads energy companies win, tails energy consumers lose.

TOPICS:   Utilities

8 comments

  • dvdj10
    Why don't the big 6 all chip in for this instead? Oh because that will mean they'll increase prices to cover it. Either way we'll end up paying for it.
  • Justin A.
    So even though it's, "extremely unlikely that any of the large energy suppliers in the UK would become insolvent", we pay into a bailout fund in case they do? So let's say that they never face a crash and the recession ends, what happens to that consumers' cash they've stockpiled? I bet the consumers don't get it back. If other industries took on this failsafe model, we could face rises on train services, petrol costs, etc just to cover private companies' backs in case they enter administration? Oh wait, those industries have already done that to us.
  • shiftynifty
    this has fail...for the consumer.... stamped all over it...
  • Archie
    The great new depression is not far off. Look at the tonnes of gold china and Russia have already purchased and still are as the petrodollar will collapse.
  • Sicknote
    So, this is easy for me. Start my own energy company trading on the open market and selling to the general public. Secretly I'll be spending all the firms cash on cocaine, fast cars and girls who'll give me a Cleveland Steamer. Then when the firms about to pop I'll ask the Govt for a bailout.
  • Dick
    How can an electricity supplier fail? They don't actually supply, do they? They just bill for usage. If one of them fails, surely the electricity still flows and the customers just get billed by someone else.
  • Loafer1946
    As Justin says instead of the taxpayer bailing them out, the consumers (tax payers?) pays in advance in case they go broke, and this money goes where then. Bet this idea was thought up by the energy companies and they lobbied ministers to do it. Tax payer aka consumer screwed all round.
  • Justin A.
    @ Dick, In fact it's possible that you can have no company billing you whatsoever, e.g. if you move into a new build apartment block that isn't even on the map yet, and still have power flowing into your home. Free electricity until Eon or someone gets your details and a meter reading. You're right though, if one company fails, the customers just switch. Don't see why a power firm should be bailed out at all.

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