The UK energy regulator Ofgem has introduced new rules making it harder for small suppliers to enter the market.
Ofgem announced the new entry tests after a number of small energy suppliers have gone out of business over the last year. Firms looking to enter the market will now have to prove to the regulator that they have enough funds to stay afloat for the first year and can provide quality customer service. Directors, shareholders and senior managers will also have to show they are ‘fit and proper’ to hold licences. The new rules will apply from June this year.
The regulator said that the new tests will ensure less company failures, which impact on consumers, as well as higher standards of customer service. In the last 6 months alone a total of 11 small energy suppliers in the UK have gone bust – Brilliant Energy, Our Power, Economy Energy, Spark Energy, Extra Energy, Future Energy, National Gas and Power, Iresa Energy, Gen4U, OneSelect and Usio Energy. The closure of these firms has collectively affected almost 750,000 customers.
“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,” said Mary Starks, executive director of consumers and markets at Ofgem.
“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.”
Citizens Advice had been calling on the regulator to introduce tougher entry rules for energy suppliers since 2013 and welcomed Ofgem’s recent announcement.
“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,” said Gillian Guy, chief executive of Citizens Advice.
“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.”
Natalie Hitchins of consumer group Which?, said: “Greater checks and transparency are desperately needed to ensure that energy companies are sustainable and deliver customers the service they deserve. People shouldn’t be left waiting many months for credit refunds when their supplier goes bust.
“But it is vital that any new tests don’t stifle innovation or competition between suppliers. The regulator needs to closely monitor energy firms and ensure customers can still switch to better deals offered by companies providing great service. People should shop around for the best energy deal for them.”
