Tighter licensing rules for energy firms as Extra Energy goes bust

22 November 2018

Energy regulator Ofgem is set to tighten licensing rules for new energy suppliers that join the market following the collapse of several firms this year.

The announcement comes after the Extra Energy went bust, leaving 108,000 customers without an energy supplier. Ofgem is tightening its rules because of a slew of other energy firms going bust this year. 

Under the new rules, companies will have to demonstrate they have adequate financial resources and can meet their customer service obligations before they are allowed to supply energy.

Ofgem says the measures will help ensure new suppliers are ready to enter the market while still driving competition. It expects them to be in place by late spring next year.

Applicants for new supply licences will have to demonstrate to Ofgem that they will have the funds and resources to manage their business for at least 12 months after entering the market.

They will also have to provide the regulator with a plan to meet their customer service obligations, including Ofgem’s complaint handling standards and obligations to assist vulnerable customers.

Ofgem is also consulting on tightening its test of whether applicants are ‘fit and proper’ to be granted a licence.

What to do if you are an Extra Energy customer

If you are an Extra Energy Customer there is no need to panic.

Ofgem says it will choose a new supplier to take on Extra Energy’s customers as quickly as possible.

This supplier will contact customers shortly after being appointed.

In the meantime, Ofgem is advising Extra Energy’s customers not to switch to another energy supplier and take a meter reading, ready for the new supplier.

Once customers have been contacted, they can then ask to be put on the new supplier’s cheapest deal or shop around for a better one. Customers won’t be charged exit fees for switching away from their new supplier.

Philippa Pickford, Ofgem’s interim director for future retail markets, says: “If you are an Extra Energy customer, under our safety net, we will make sure your energy supplies are secure. We will also ensure that domestic customers’ credit balances are protected."

She adds: “Ofgem will now choose a new supplier and ensure you get the best deal possible. Whilst we’re doing this our advice is to ‘sit tight’ and don’t switch. You can continue to rely on your energy supply as normal. We will update you when we have chosen a new supplier who will then get in touch about your new tariff.”

Extra Energy is one of a number of energy suppliers that have ceased trading this year amid rising wholesale energy costs and growing competition. The market has also been hit by increased regulation, including a cap on standard variable tariffs set to be introduced from January next year.

Other companies that have gone bust include, Iresa Energy, Future Energy, Usio Energy and Gen4U.

Raising standards

Next year, Ofgem will consult separately on proposals to introduce new requirements for suppliers to report on the adequacy of their financial and operational resources for running their business and providing customer service.

These proposals aim to reduce the risk of disorderly supplier exits by raising standards around financial resilience.

In the event a supplier fails, Ofgem’s ‘safety net’ provision, which protects domestic customers’ credit balances and ensures all customers’ energy supply continues, will remain in place.

It will also consult on a range of options including how suppliers accrue, hold and use customers’ credit balances.

Mary Starks, executive director for consumers and markets at Ofgem, says: “New energy suppliers that have entered the market over the last few years have offered consumers more choice and helped to drive down energy prices and drive up customer service standards.”

She adds: “However, complaints against some suppliers have been rising recently and we have had to step in when others have ceased trading. Our proposed new tests for suppliers wanting to enter the market will ensure consumers will be better protected against the risk of poor performance, while still allowing more competition and innovation in the energy market to benefit consumers.”

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