Tuesday 22 October 2019 11:46 am

Ofgem proposes new rules to stop energy firms going bust

Ofgem has proposed further reforms for existing energy suppliers as part of ongoing efforts to reduce the risk of supplier failure and strengthen the safety net for consumers.

The new rules would allow the regulator to request independent audits of suppliers’ customer service operations and financial status. 

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Suppliers will be asked to maintain “living wills” detailing what would happen if they failed, including the cost to other consumers, the disruption customers would face, and how they would continue to meet license conditions.

In the event of failure, the new rules would ensure consumer protections around debt collection practices remain in place. 

Suppliers would have to put in place arrangements to cover a proportion of customers’ credit balances and government environmental scheme costs.

15 energy suppliers have gone bust in the last year, affecting more than 1m domestic customers in the UK. 

Ofgem is also planning to tighten its “fit and proper” requirements, with more scrutiny on the fitness of senior management staff, and bringing in a new openness and cooperation principle.

Additional checks will also be introduced for new suppliers, who will have to demonstrate they have the capability to take on new customers at certain thresholds. The proposed figures are 50,000; 150,000; 250,000 and 500,000-800,000.

If suppliers fail the checks, they will be banned from taking on additional customers.

These proposals follow regulations issued in June, which require new suppliers to demonstrate sufficient funding, provide a customer service plan and pass a “fit and proper” test.

Mary Starks, Ofgem’s executive director of consumers and markets, said: “The new proposals will create more accountability in the market and reduce the risk and costs to consumers associated with supplier failure.

“The changes will also strengthen the ‘safety net’, so that consumers can be reassured that whatever happens they will be properly protected.”

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The consultation is open until 3 December for responses, with plans to issue a statutory consultation in early 2020.