Watching the huge effort being put in to manage the thousands of Thomas Cook travellers affected by the company failure, it is probably a good time to compare ATOL, the Air Travel Organisers’ Licensing scheme, and energy companies’ supplier of last resort (SOLR) arrangements.
In ATOL, which dates back to 1973, companies pay a small upfront fee for every traveller (£2.50). That money is held in an industrywide ring-fenced fund to cover the cost of repatriating stranded travellers.
In comparison, SOLR allows other suppliers to bid to take on customers ‘stranded’ when their supplier goes bust. The industry as a whole covers additional costs incurred by the new supplier (subject to agreeing the costs with Ofgem).
The two schemes have slightly diferent jobs to do. SOLR gives alternative suppliers the opportunity to take on new customers – and potentially keep them, if the customers are satisfied. The new supplier will have to take on customers both in credit and debit (although SOLR winners have elected to honour credit balances, that is voluntary and part of the bid).
The ‘bid’ aspect of the SOLR regime seems like a useful way to get more value for customers from the process. Companies have to think about how they will manage extra customers and what they can offer.
But it seems like a good idea to ask suppliers to incur a small cost upfront, effectively to insure themselves and their customers against liquidation. Among all the costs of setting up an energy supplier this is relatively small and, usefully, it is both predictable and scales with customer numbers. The SOLR arrangement, in comparison, leaves all energy suppliers vulnerable to unquantified and unpredictable costs when their competitors go bust – and places no requirement whatsoever on new entrants to make provision in case they go out of business or face unexpected costs from the loss of other suppliers.
When Ofgem completes its review of arrangements for suppliers entering the market, adding ATOL-style insurance to cover for SOLR costs would be sensible. The cost per customer should be small – there is no need to fly customers from the other side of the world – and it would be fairly levied. Ofgem might even allow companies and customers to have the option of not taking out that insurance – but in that case the risks must be very clear, no costs for ‘saving’ those customers shoud fall on other suppliers or the industry as a whole, and the company’s position must be very clear (ATOL has a ‘look before you book’ message reminding travellers to check the company’s ATOL status).
Any thoughts, or other comparisons?