Economy Energy has been banned from taking on new customers by the industry regulator, prompting fears that the spate of energy supplier failures seen last year may continue into 2019.
Poor levels of customer service at the struggling supplier prompted the regulator Ofgem on Friday to impose a three month ban on new customers joining Coventry-based Economy, which currently supplies energy to about 244,000 people in the UK.
Customer service issues have proved a bad omen for small energy providers, with many of the eight suppliers that failed in 2018 suffering from high levels of complaints.
“Ofgem is taking action to protect customers from suffering more harm from the unacceptable level of customer service provided by Economy Energy. We expect the supplier to take immediate action to rectify its failings or face having its ban extended,” said Anthony Pygram, director of conduct and enforcement at Ofgem.
The regulator’s decision — which also prevents Economy from requesting one-off payments and increasing direct debits — is the most recent blow to the company, which last month scaled back its operations and was forced to assure customers it had “no intention” of closing its doors as speculation mounted it was on the brink of collapse.
Economy said on Friday it was “very disappointed” with the decision. “We wish to advise our customers we will be co-operating fully with Ofgem and are always committed to continual improvement of our business,” it added.
Providing adequate customer service as they grow has been an increasing issue for some so-called “challenger” energy suppliers, prompting the regulator to announce it would raise the bar on new entrants to the market gaining licenses.
The last supplier to fail, One Select, did so two days after ranking bottom of a Citizens Advice customer service table.
“Customer service issues have been a precursor to other supplier failures,” said Deepa Venkateswaran, an analyst at Bernstein. “It’s a leading indicator of failures and not easy to correct.”
“The main pinch point is as you scale up you need to invest in more resources. You need a proper call centre, a proper IT system and there are more issues to deal with. But when you have financial issues you are trying to put out other fires,” she added.
Matthew Vickers, chief executive at the UK Energy Ombudsman, said there had been a “significant increase” in complaints against Economy in recent months.
The watchdog launched 399 investigations into complaints against the company in November, compared with 112 in January last year.
In October, Economy was among a number of companies to miss the late payment deadline for its renewables obligation — a green energy scheme — to the regulator, with bills of more than £17m outstanding.
Ofgem said that if Economy did not improve its customer contact procedures, address billing and payment failures and start issuing customer refunds more promptly, it could ultimately have its license suspended.