Energy Suppliers Face Stricter Entry Tests

Energy suppliers in the UK will soon be forced to pass stricter tests in order to enter the market, Ofgem has announced.

The new rules will come into effect in June and have been implemented after a long succession of energy supplier failures over the last year. Just in the past six months, 11 small energy firms in the UK have gone bust and that number is predicted to grow. The companies that have gone out of business are Brilliant Energy, Our Power, Economy Energy, Spark Energy, Extra Energy, Future Energy, National Gas and Power, Iresa Energy, Gen4U, OneSelect and Usio Energy.

Under the new regulations, suppliers looking to enter the energy market will have to show Ofgem they can sufficiently fund their business for its first year of operations. They will also have to prove they can provide an adequate level of customer service, and directors, shareholders and senior managers will all have to prove they are ‘fit and proper’ to hold a licence.

“Any prudent, well-prepared entrant should be able to demonstrate to us at the point of licensing that they have planned their financial and operational resources for entry into the supply market and that they are prepared to meet the costs they will face (for example, under government/environmental obligations and other industry costs),” said Ofgem.

“Applicants will also need to provide a ‘statement of intent’ regarding compliance with their licence obligations, with particular regard to customer service. Finally, we are enhancing our assessment of entrants’ suitability to hold a supply licence through new fit and proper disclosure requirements.”

Ofgem said that since the UK energy market has been opened up to competition over the last decade, customers have benefitted from more choice, lower prices and better customer service. However, they admitted that the energy suppliers to have gone bust recently hadn’t provided the proper level of customer service expected from gas and electricity firms.

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. 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.”

The regulator also said that it will start a consultation in the summer into raising the standards of existing energy suppliers. Ofgem will consider introducing new reporting requirements and rules regarding customer credit balances.

Lawrence Slade, chief executive of trade association Energy UK, welcomed the new rules, saying: “We want to see a future retail market where competition thrives and customers benefit from increased choice and service, and aren’t left picking up the tab when suppliers with unsustainable business models fail.”