Households to be better insulated against their energy supplier going bust under new plans from regulator Ofgem
HOUSEHOLDS will be given greater protection against their energy supplier going bust under plans unveiled by regulator Ofgem.
The watchdog’s new rules are designed to drive up customer service standards, lower the risk of suppliers going bust and strengthen the safety net in the event of failure.
It comes after more than a dozen energy suppliers have gone under in the past two years, with Solarplicity one of the most recent casualties.
The regulator is proposing new financial checks on suppliers to ensure their customer base does not get bigger than they can handle.
If they fail the tests, they won't be allowed to recruit more customers.
Management would have to meet "fit and proper" requirements and firms will have to maintain "living wills" to ensure an orderly wind down in the event of collapse as part of the plans.
Ofgem also intends to strengthen the industry safety net so that customers suffer less disruption should a supplier fail in spite of the new safeguards.
The regulator is consulting on its proposals until 3 December and intends to bring them in early next year.
Why are the rules needed – and will they work?
The supplier failures in the last 18 months highlight that lessons have to be learnt and reforms introduced to ensure suppliers are trading responsibly and protecting customers.
Stephen Murray, energy expert at MoneySuperMarket, comments: “We can’t ignore the cost that supplier failures are putting on the energy market and the existing supplier base. Ultimately these costs will wash down into higher customer bills and we have to do all we can to minimise the amount UK households are paying.
“Ultimately this has to be policed by the regulator and today’s suggested reforms are welcome and, like the reforms for new entrants recently introduced, definitely not before time.”
He adds: “The energy market is thriving with dozens of suppliers offering choice, competitive tariffs and good customer service. The regulator has to make sure there are conditions in place for this to continue and the announcement today is another step towards a more sustainable residential energy market.”
Mary Starks, the executive director for consumers and markets at Ofgem, said opening up the energy market to competition had been "extremely good for customers so far" because it meant more choice - and cheaper deals.
But she added: "We want to make sure that when things do start to go wrong with a company, we can act faster."
When a supplier fails, it often because it cannot pay its green taxes.
Ofgem recommends customers sit tight until a new supplier is found. The new operator will be in touch. Credit balances are also honoured.
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Despite the spate of failures, the energy market is thriving with dozens of suppliers offering choice, competitive tariffs and good customer service.
New figures from Energy UK show that customers are still switching to smaller firms. Experts say that now is a good time to switch.
More than 600,000 energy customers switched electricity supplier in September, a 10 per cent increase over a year earlier.
Peter Earl, head of energy at comparethemarket.com, says: “The momentum is with the small and medium-sized challenger suppliers as they continue to gain customers at the expense of the Big Six.
“If the Big Six continue to shed customers at this pace then by 2024 they will have less than 50 per cent market share – a scenario that would be a remarkable change in fortune for our largest energy players and demonstrate a fundamental transformation of the UK’s energy market.”
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