Tougher entry tests for gas and electricity suppliers are being introduced to prevent consumers being hit by failing businesses.
New tests for energy suppliers entering the market will be rolled out from June this year by Ofgem, who are dealing with the collapse of several energy companies.
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Economy Energy collapsed in January leaving 235,000 customers in the lurch. It sparked massive consumer outrage. It was the ninth small UK supplier to fail leaving more than 800,000 displaced. The largest collapse was Scottish-based Spark Energy which had nearly 300,000 customers.
Applicants will have to demonstrate sufficient funding, provide a customer service plan and pass a fit and proper test. Ofgem will be launching a consultation on ongoing requirements for suppliers currently in the market in the summer
Companies applying for a licence to supply energy will have to undergo more stringent tests from June in order to help drive up standards for customers and reduce the risk of supplier failure.
Applicants will need to demonstrate they can adequately fund their operations for their first year, outline how they expect to comply with key regulatory and market obligations, and show their intentions to provide a proper level of customer service.
Directors and major shareholders of companies applying for a licence, as well as senior managers, will also have to show they are 'fit and proper' to hold a licence.
Ofgem will consult on new proposals in the summer with the aim of raising standards of existing suppliers. This will include considering new reporting requirements for suppliers who are already active in the market and rules around how suppliers manage customer credit balances. Ofgem will also review the arrangements for suppliers exiting the market.
Over the last decade more consumers have benefited from competition in the energy market, which has driven down energy prices, helped to raise customer service standards and provided more choice.
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However, in the last 18 months, a number of suppliers have failed many of whom provided a poor level of customer service.
Following these supplier failures, Ofgem's 'safety net' has protected domestic customers' credit balances and ensured all customers' energy supply continues. Ofgem acknowledges that customers can still experience inconvenience and worry if their supplier fails.
Strengthening entry and ongoing requirements on suppliers will help to drive up customer service standards and reduce the risk of disorderly supplier exits.
Ofgem aims to minimise the impact, including the cost, that a supplier failure has on consumers and the wider market.
