Energy crisis sparks questions of liability where hedged prices are not necessarily so.

At the end of September, it was reported that OFGEM has sought detailed financial information from every energy supplier in the UK “amid fears of a wave of winter bankruptcies” as Enstroga, Igloo Energy and Symbio Energy became early casualties of the escalating energy crisis that has pushed power prices in the UK to record highs.

The aim of OFGEM’s investigation is to assess the vast scale of this crisis and gain an understanding of how many electricity and gas providers are at risk of collapse over the coming winter months. Concerns in this area have continued to gather momentum with The Independent warning that the energy crisis is likely to continue well into 2022 with “a near perfect storm of factors” driving the current price evolution.

Mounting prices have left many businesses exposed to the possibility of rising costs in the form of inflated energy bills. This includes companies who have utilised energy brokers to act as intermediaries with energy suppliers, negotiating and obtaining the necessary arrangements for the supply of energy to commercial premises.

More specifically, whilst companies may have requested that a broker obtain a fixed price energy contract – and this type of contract may have even in principle been obtained by the broker – in the face of both spiralling prices in the wholesale energy market and, in some circumstances, failures to sufficiently hedge for future consumption, energy suppliers may nevertheless find or have found themselves in a position whereby they are simply unable to continue to supply energy at the agreed fixed price. The risk of an energy supplier finding themselves in an under-hedged position has been exacerbated by the COVID-19 pandemic and the associated periods of lockdown which resulted in many companies being unable to operate “business as usual” for months at a time, leading to energy consumption data – typically relied upon for forecasting and hedging purposes – being disproportionately low and consequently unreliable.

From a legal perspective, considerations for customers facing this situation will be the contractual arrangements with the energy provider; the rights and obligations and the ability (if any) for the provider to amend terms and prices. There are important commercial factors too, the need for the customer to ‘keep the lights on’ and the potential risk that the energy provider folds unless there is re-negotiation of some sort, leaving the customer with the alternative of what other offers are available in the market. Separate to these considerations are also the obligations and representations made by an energy broker to a customer when procuring terms for hedging utility costs. The terms, representations and qualifications/limitations of the broker are crucial considerations here when assessing whether there are potential grounds for redress. It is a difficult situation for all concerned, but also potentially one in the short or more likely longer term that may afford rights of recovery.