Credit, Collections & Insolvency News
Companies 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.
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.
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, 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.
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.”
Gillian Guy, Chief Executive of Citizens Advice, said “Ofgem’s new rules are good news for consumers. From June, firms entering the market will need to be set up to deliver good customer service and be financially sound.”
“The regulator is right to now turn its attention to the issue of poorly performing suppliers already in the market. Ofgem needs to take steps to identify those companies not delivering for their customers or that may be in financial difficulty and examine if its current approach to resolving problems it identifies is the right one.”
“More firms going out of business remains a possibility. It is essential the regulator acts quickly to better manage future supplier failures.”
“We all end up paying through higher bills when energy companies go bust. Without better ongoing monitoring and new rules to manage future supplier failures, consumers will continue to suffer.”
Peter Earl, Head of Energy at comparethemarket.com, said “These measures will be reassuring for consumers whose confidence may have been dented by the demise of 11 energy suppliers in less than two years. The rise of smaller energy brands has been positive for the market, increasing competition and helping to disrupt the Big Six monopoly in the market. However, many of these providers have struggled with the spike in wholesale energy prices. With a quarter of all customers now supplied by small and medium sized suppliers, it is vital that new entrants to the market are fit for purpose.”
