Ofgem Proposes New Finance and Customer Service Checks on Suppliers

Energy firms could face independent audits of their customer service and finances under new regulations proposed by Ofgem.

The proposals are a response to the flurry of small suppliers collapsing in recent years.

Smaller firms could face checks as they reach certain thresholds of account numbers—50,000, 150,000, 250,000 and between 500,000 and 800,000—to ensure they have adequate resources to deliver good customer service to those customers, while meeting their industry obligations. They may be prevented by the regulator from signing up new customers if they fail to satisfy the criteria.

Suppliers would also need to create a “living will”, detailing how they’d make an “orderly exit” from the market if they went out of this business. This would require guaranteeing a proportion of customer credit balances and other financial obligations in the event of their collapse.

Managing directors would also need to be found to be “fit and proper,” without any history of insolvency or disqualification from acting as a company director.

The number of energy suppliers has boomed recently, from 12 at the start of the decade to 70 at the peak of the market last year.

Ofgem said that new suppliers had brought innovation and competition to the market. However, consumer groups and larger suppliers have warned that some of these firms are delivering substandard customer service and exposing all ballplayers to additional costs.

In July, Ofgem introduced tougher licensing requirements for new market entrants but faced calls for stricter checks on existing suppliers.

Many small firms have also gone bust—16 since November 2016—stranding hundreds of thousands of energy customers and leaving behind unpaid industry bills and costs that shouldered by all energy customers.

In June Citizens Advice revealed that the failure of 11 energy suppliers since January 2018 had cost consumers £172 million.

Meanwhile, Ofgem is also seeking to strengthen the ‘safety net’ for the customers stranded by folded energy firms.

Mary Starks, Executive Director of Consumers and Markets at Ofgem, said: “The new proposals will create more accountability in the market, require more responsible and appropriate behaviour from suppliers in the market and reduce the risk and costs to consumers associated with supplier failure.

“In the event a supplier fails, the changes will also strengthen the ‘safety net’ and improve the experience of customers when they are transferred, so that consumers can be reassured that whatever happens they will be properly protected.”

Gillian Guy, chief executive of Citizens Advice, said the proposals are “good news for energy customers” and would limit their exposure to failed suppliers and provide better consumer protections.

Matt Vickers, the chief executive of Ombudsman Services, also welcomed the proposals. He said his service had seen spikes in complaints about fast-growing energy companies unprepared to handle their new customer numbers.