Under newly proposed plans by Ed Davey the tax payer could foot the bill if one of the big six energy companies goes bust. We answer five questions on the proposed contingency plans.
What is Ed Davey proposing?
Energy Secretary Ed Davey is proposing to intervene quickly should one of the big six companies - EDF of France, E.ON and npower of Germany and Scottish Power, owned by Iberdrola of Spain, Centrica and Scottish & Southern Electric – go bust.
The "worst case scenario" plans, outlined in an Energy Department consultation paper open for comments until March 15, could result in household bills rising by between £7 and £32 a year on average over the period, equivalent to a maximum contribution of £4bn on the basis of 25.5m households in the UK, according to The Telegraph.
The provisions would enable the Government to intervene and continue to fund any company about to go bust and control the cost passed onto the consumer and maintain market sustainability. The rest of the industry would be expected to maintain supplies should this happen.
What is the likely-hood one of the big six companies could going bust?
It is not thought to be very likely that one of these companies would go bust any time soon and their commitment to the UK is not being questioned. It is thought the government is brining in these extra precautions because it does not want to have a repeat of the banking fiasco in the energy sector.
Does the government not already have provisions in place?
It does in the form of the 2011 2011 Energy Act which has already introduced a special administration regime to provide protection for the National Grid and the electricity and gas distribution networks it operates, as well as for the rail and water industries. However, Davey feels these provisions are not robust enough to cope with the mayhem that would ensue in the market if one of the big energy providers went bust.
What has the Department of Energy said?
An Energy Department official told The Telegraph: “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.”
What do the energy companies think about these new provisions?
EDF has said it is broadly supportive of the proposals, while others are yet to comment