Ofgem may set tougher financial tests for suppliers

Ofgem will consult in late summer on changes to energy supply licences that could mean suppliers have to face more financial tests.

Two companies have exited the market this year requiring the ‘Supplier of last resort’ (SOLR) process to be used.  Initially Ofgem has identified some changes that can be made to this regime and it will consult on those first.

More broadly, Ofgem says it is a normal part of the market for some companies to exit – two other companies have sold all or part of their customer base. But there have been calls from existing suppliers for the regulator to set tighter financial standards for new entrants. Ofgem says it will consider whether it should have additional requirements relating to the financial health of a prospective supplier, or require more financial information from new entrants, and whether there should be ongoing checks once the supplier is operating.  It also wants to increase confidence that new suppliers can meet expected customer service standards.

The regulator will also look at whether it needs more powers to revoke a licence in the event of poor performance. Currently it can revoke a licence if it is not used, if the supplier is insolvent or if it has breached licence conditions or failed to pay penalties.

Ofgem made the licensing procedure simpler in 2003 and introduced a tiered approach in the most recent changes in 2010.

Read the regulator’s open letter here

MoneySavingExpert’s Martin Lewis set out three tests for suppliers, see here

Further reading

Energy suppliers: do they need more oversight?

OPINION: Energy supply company insolvencies – a concern or an opportunity?

Co-Operative Energy to acquire Flow Energy

TotoEnergy passes prepayment customers to Utilita Energy

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