Ofgem’s new proposals state new energy suppliers will have to pass financial tests to show they have sufficient financial resources to meet customers’ expectations, before they are permitted to operate within the industry. The proposals, which are part of a consultation until 23rd January 2019, are due to be put into action during spring 2019.
Competition in the energy sector has increased in recent years, due to efforts by the regulator Ofgem and also government funding. In 2011, there were only 14 electricity and gas suppliers, but fast-forward to June 2018, this number has increased to 73. However, with recent news of several energy companies going bust this year, Ofgem have stepped in with plans.
The regulator said the tests should ensure new suppliers are strong enough to compete, whilst encouraging innovation within the market. Candidates for new supply licences would have to provide information to show they have the funds and resources to manage their business for at least 12 months after entering the industry, together with plans of how they will meet customer service obligations. These plans would need to meet Ofgem’s complaint-handling standards, which are there to assist customers in vulnerable circumstances.
Mark Starks, Executive Director for Consumers and Markets said: “New energy suppliers that have entered the market over the last few years have offered consumers more choice and helped to drive down energy prices and drive up customer service standards. However, complaints against some suppliers have been rising recently and we have had to step in when others have ceased trading. Our proposed new tests for suppliers wanting to enter the market will ensure consumers will be better protected against the risk of poor performance, while still allowing more competition and innovation in the energy market to benefit consumers.”
Citizens Advice chief executive Gillian Guy welcomed the proposals: “For too long, firms that are unprepared, financially unsustainable or both have been able get a licence and start operating as a supplier. Ultimately it’s consumers who suffer when unprepared energy companies are able to enter the market. Many customers suffer with poor customer service, long waits on the phone and inaccurate bills. And everyone pays the price, through their bills, when weak suppliers fail.” She added the: “new rules will protect consumers from unfit firms getting a licence in the future.”
This plan from the regulator is expected to drive up standards within the industry, as well as providing a “safety net” for customers should suppliers go bust – so good news all round for both consumers and businesses.