New rules imposed

Ofgem applies tougher tests on new energy suppliers

gas, Ofgem, price capsCompanies applying for a licence to supply energy will have to undergo more stringent tests from June in order to help drive up standards for customers and reduce the risk of supplier failure.

The move by energy watchdog Ofgem follows the collapse of about a dozen suppliers in recent months, including OurPower, Spark Energy Supply, Future Energy, National Gas and Power, Iresa Energy, Gen4U and Usio Energy.

Applicants will need to demonstrate they can adequately fund their operations for their first year, outline how they expect to comply with key regulatory and market obligations, and show their intentions to provide a proper level of customer service.

Directors and major shareholders of companies applying for a licence, as well as senior managers, will also have to show they are ‘fit and proper’ to hold a licence.

Ofgem will consult on new proposals in the summer with the aim of raising standards of existing suppliers. This will include considering new reporting requirements for suppliers who are already active in the market and rules around how suppliers manage customer credit balances. Ofgem will also review the arrangements for suppliers exiting the market.

The regulator says that over the last decade more consumers have benefited from competition in the energy market, which has driven down energy prices, helped to raise customer service standards and provided more choice. However, it acknowledges that in the last 18 months a number of suppliers have failed, “many of whom provided a poor level of customer service.”

Following these supplier failures, Ofgem’s ‘safety net’ has protected domestic customers’ credit balances and ensured all customers’ energy supply continues. Ofgem acknowledges that customers can still experience inconvenience and worry if their supplier fails. 

It says that strengthening entry and ongoing requirements on suppliers will help to drive up customer service standards and reduce the risk of disorderly supplier exits.

Ofgem aims to minimise the impact, including the cost, that a supplier failure has on consumers and the wider market.

Mary Starks, executive director of consumers and markets at Ofgem, said: “In an ever-evolving market, Ofgem’s objective is to protect consumers while also ensuring they enjoy the benefits of increased competition and innovation that successful new firms entering the market bring. 

“Applying new requirements on suppliers entering and operating in the market will aid us to weed out those that are underprepared, under-resourced and unfit. This will help minimise the risk of supplier failure and help drive up standards for consumers. 

“We will adopt a proportionate, risk-based approach to licensing suppliers and will continue to encourage competition and innovation, including innovative business models, which benefits consumers.”

Stephen Forbes, chief commercial officer and co-head of SSE Energy Services, welcomed the changes, but said Ofgem should go further.

“These changes are urgently needed to protect customers from poor customer service and unsustainable pricing. We would like to see Ofgem go further and now introduce regular checks for suppliers already in the market, ensuring they remain fit for purpose, similar to those used by the FCA for financial institutions.

“Our hope is these changes rid the market of unscrupulous suppliers and directors while creating a more stable and competitive market for customers.”


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