Ofgem introduces rules to clamp down on energy suppliers going bust

Energy watchdog Ofgem is to tighten rules for new energy suppliers after a dozen energy companies have gone bust in the past year.

From June this year – directors, major shareholders and top managers of new companies have to demonstrate they are “fit and proper” to hold a licence, with proof that they can fund their operations effectively for the first year of operations.

They must also comply fully with regulatory and market obligations while managing customer service adequately.

Which suppliers have gone bust?

The move follows the recent collapse of a number of suppliers, including:

• Brilliant Energy
• Our Power
• Economy Energy
• Spark Energy Supply
• Extra Energy

Protecting the consumer

For any consumer a sudden change is always stressful, and the management of bills and budgeting is made more complex with a shift to new suppliers. It’s true that Ofgem’s safety net protects credit balances and ensures security of supply for customers but they really want continuity and peace of mind as well as the best deal.

Households can currently choose between 69 energy suppliers with the newcomers usually offering the best deals on paper.

But the problem is that the newcomers don’t often have the deep financial resources of the bigger companies and this can be a big problem when prices rise in the energy markets.

Energy bought in advance

The big companies will “hedge” and buy energy well in advance on the markets, so taking advantage of best prices. Younger companies often do not have the resources to do this and so are vulnerable to rapid shifts in wholesale prices.

Consumers were hit by 57 price rises from energy companies in 2018, with the biggest increases all coming from smaller brands, all wrestling with wholesale prices rise of over 20% in the year.

What will suppliers need to prove?

The new rules will come into force in June and energy providers will have to:

• prove they have enough funding for their first year,
• outline how they expect to comply with key regulatory and market obligations
• show their intentions to provide a proper level of customer service

The stringent rules will help to steady the churning supplier market but also will give people confidence to make a switch. It’s crucial that consumers have no doubts and their choice should be based on knowing who the most stable energy companies are.