Tougher tests for new entrant energy suppliers come into effect

Suppliers must provide proof of sufficient funding for the first year of operation

New energy suppliers entering the market will face stringent tests starting today as part of Ofgem’s efforts to drive up standards and reduce the risk of them going bust.

Under the new tests, suppliers must provide proof of sufficient funding for the first year of operation as well as details of their proposed plans to meet customer service obligations, including compliant handling standards and assisting customers in vulnerable situations.

They also include an “enhanced fit and proper assessment”.

Ofgem’s plan to introduce the tougher tests, confirmed earlier this year, follows a wave of supplier failures over the last two years, many of whom had very poor customer service.

Mary Starks, Executive Director of Consumers and Markets at Ofgem, said: “The new requirements will help us to weed out those that are under-prepared, under-resourced and unfit to hold a licence. This will help reduce the risk of supplier failure and help drive up standards for consumers.

“We will want to continue to encourage competition and innovation, including innovative business models, which benefits consumers, but also to ensure firms have robust business plans. We plan to consult early autumn on the ongoing requirements and exit arrangements for suppliers.”

Energy Ombudsman

The Energy Ombudsman believes there are risks for consumers when new energy suppliers fail to deliver to certain standards and welcomed the stricter controls.

Chief Executive Matthew Vickers added: “We therefore support the introduction of stronger controls from Ofgem to enhance the robustness of the energy market.

“Setting standards for new suppliers from the outset – and introducing consequences of falling short of these – should help to foster greater consistency across the sector and avoid some of the problems we’ve seen recently.

“In addition to these changes for new entrants to the energy market, we look forward to Ofgem’s proposals for ensuring tougher rules extend to existing suppliers. In our role as the Energy Ombudsman, we’re keen to work with all suppliers to help them improve their customer service and complaint handling more generally.”

Which?

Natalie Hitchins, Which? Head of Home Products and Services, said: “Energy customers have too often faced a lottery when their supplier goes bust – not knowing if they will face an overnight price increase of hundreds of pounds or potentially have to wait months for credit refunds.

“Energy is an essential service and all consumers bear the costs when firms collapse – so it is vital Ofgem does its job and ensures the market functions properly by fully implementing these stringent tests to root out unfit new suppliers before they take on customers.”

SSE

Stephen Forbes, Managing Director of SSE Energy Services, added: “It is great that rules are finally in place to protect customers from rogue energy companies entering the market. We now hope to see the end to costs of supplier failures being passed to customers. Ofgem should encourage responsible behaviour in the market, and for suppliers to pay their own way.”

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