Ofgem introduces tougher tests for energy suppliers entering the market

Welcomed news from Ofgem today.

The regulator announced that any new companies applying for a licence to supply energy will have to undergo more rigorous tests from June 2019. This is being done to help drive up standards for customers and reduce the risk of supplier failure.

Any new companies applying for a licence will have to demonstrate they can adequately fund their operations for their first year, outline how they expect to comply with regulatory obligations and show their intentions to provide a good level of customer service.

From senior staff members to directors and major shareholders of the companies applying for a licence, will also have to show they are ‘fit and proper’ to hold a licence.

Why has Ofgem taken this step?

Ofgem launched a consultation into its plans to tighten checks on energy supplier in November 2018. At the time, Ofgem highlighted their concerns with poor customer service and financial instability after several energy suppliers went bust.

In the last 12 months, 10 energy suppliers have went bust leaving hundreds of thousands of households without an energy supplier.

Trade body, Energy UK, are pleased about the new requirements suppliers will have to meet before going live.

Lawrence Slade, Chief executive of Energy UK, said:

“We welcome measures from Ofgem to introduce tougher entry tests for new suppliers entering the retail market. We want to see a future retail market where competition thrives, and customers benefit from increased choice and service, and aren’t left picking up the tab when suppliers with unsustainable business models fail.

Ofgem will consult on new proposals in the summer with the aim of raising standards of suppliers already operating in the energy market. This will include considering new reporting requirements for energy companies who are already active in the market and rules around how suppliers manage customer credit balances.