Ofgem proposes reforms to check on existing energy suppliers

Ofgem hope the reforms would ensure the financial health of energy companies after a spate of collapses in 2018 and 2019.

Suppliers would also be subject to checks about their ability to cope with new customers and offer continuing high levels of customer service.

If the proposals are accepted, it would bring existing energy suppliers into line with new market entrants who have been under additional scrutiny since June this year.

A full consultation has been opened and will close on 3 December. Following this, Ofgem will publish further proposals in early 2020.

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Higher standards

The object of Ofgem's proposals is to improve the health of the energy sector by reducing the possibility that challenger energy suppliers will collapse or struggle to deal with their customers in an appropriate manner.

They hope to extend rules recently applied to new suppliers to existing ones, meaning energy companies would be required to allow Ofgem to request independent audits of both their financial status and their customer service operations.

Senior managers at energy companies would also be subject to ongoing assessments that they're 'fit and proper' to carry out their duties in the same way that new entrants are.

In addition, Ofgem propose energy suppliers should create 'Living Wills' to set out what would happen if their firm collapsed and how they would ensure an 'orderly exit' from the market. This aims to strengthen the safety net procedures Ofgem already have in place.

Customer service

Key to these proposed reforms is a focus on ensuring quality customer service, something which challenger energy suppliers have struggled with in recent years.

For example, Solarplicity was banned from taking on new customers in February, which partially led to their collapse in August.

Under these new reforms, energy suppliers would have to prove they have the right resources for customer growth when they reach thresholds of 50,000, 150,000, 250,000 and 500,000 to 800,000 customers.

If a supplier could not demonstrate they have sufficient and effective capabilities to accept new customers, they would be barred from taking them on.

While Ofgem can currently impose customer bans to compel companies to improve their customer service, this is usually a reactive measure triggered by significant ongoing issues rather than a proactive one to avoid issues.

Improving regulations

Although these reforms are only proposals at the moment, Ofgem's intention to bring the requirements of existing suppliers into line with those of new market entrants are clear.

Some smaller energy companies remain in precarious financial shape, with Ofgem naming Delta Gas and Power, Gnergy, Robin Hood Energy and Toto Energy earlier this month as unlikely to meet their Renewables Obligation late payment deadline.

So, reforms which would allow Ofgem to scrutinise the plans of challenger energy companies may be welcomed by customers, if not completely by the energy companies themselves.

Ofgem's official figures show there were 64 domestic energy suppliers active in June 2019, up from only 27 in December 2014, yet more than a dozen have collapsed since the beginning of 2018.

These reforms proposed by Ofgem may make future collapses less likely, but they have a long way to go until they're brought into force so fragile suppliers could fold before they have a chance to take effect.

Customers of any collapsed suppliers will continue to be covered by Ofgem's safety net which ensures continuity of service for all.