THE energy regulator plans to tighten checks on suppliers after a wave of independent players failed causing concern about the implications for consumers.
Ofgem said it plans to introduce new financial checks and other tests for existing suppliers to help drive up customer service standards and reduce the risk of supplier failure.
It also wants to strengthen the safety net that is meant to protect consumers and prevent the demise of a firm causing wider market disruption.
The initiative comes after the failure of more than a dozen energy suppliers in the past two years, including Borders-based Spark Energy Supply and Edinburgh’s Our Power.
Ofgem takes action as Spark Energy subsidiary fails
Stephen Murray, energy expert at MoneySuperMarket, said the new rules were welcome but had come “not before time”.
“We can’t ignore the cost that supplier failures are putting on the energy market and the existing supplier base,” said Mr Murray.
“Ultimately these costs will wash down into higher customer bills.”
However, smaller firms still appear to be taking market share from the big six firms that dominate the sector.
Industry body Energy UK found small and mid-tier firms added around 110,000 customers in September, net of losses.
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Ofgem said: “In any competitive market some suppliers may fail to keep up with the pace of more competitive firms.
“Ofgem wants to ensure that if this happens customers are protected and the impact on the wider market is minimised.”
It insisted increased competition in the retail market has meant cheaper deals for consumers, put pressure on existing players to improve their customer service offering and brought in new and innovative players.
“At this stage in the transition to a net zero emissions economy it is more important than ever that innovators can enter the market and prosper, driving benefits for consumers,” said Mary Starks, executive director of consumers and markets.
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Ofgem brought in new rules in June to toughen the entry tests for new energy suppliers.
Under its latest plans the regulator will be able to request audits of an existing supplier’s customer services operations and financial status.
It could stop fast-growing providers from taking on new customers if they failed checks ensuring they could effectively serve their customer base.
Members of senior management teams at energy firms would have to meet “fit and proper” requirements, while businesses would have to maintain “living wills” to ensure an orderly wind down in the event of their collapse.
The regulator will consult on the plans until December 3, and aims to bring in the new rules early next year.
Independent energy firms have faced challenges as a result of rising wholesale gas prices, the introduction of a cap on energy prices by Ofgem and the cost of complying with environmental regulations.
Perth-based energy giant SSE sells household supply arm
Firms incur big cost increases under the Energy Company Obligation when they cross the 200,000-customer threshold.
Ofgem appointed Ovo to take on Spark Energy Supply’s 290,000 domestic customers in November last year.
In September Ovo struck a £500m deal to acquire the household supply arm of Perth-based energy giant SSE.
Ofgem appointed Utilita Energy Limited to take on the 31,000 customers of Our Power in January.
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