Energy retailers surviving this year’s cull of 26 suppliers to date must from January prove their financial strength to Ofgem’s scrutineers, under today’s toughening of trading rules unveiled by the regulator.

An ‘action plan for retail financial resilience’ is among reform proposals published this morning by the under-pressure agency, as it seeks to staunch 2021’s cull of electricity and gas suppliers.

Minnows’ repeatedly meagre levels of working capital, coupled with their excessive dependency on short-term dips into rocketing wholesale markets to source power, are key flaws agreed by observers in the oversight of the UK’s liberalised market presided over by Ofgem. Jonathan Brearley took over in February 2020.

More than four million homes in 2021 have been allocated new suppliers, under ‘supplier of last resort’ (SOLR) arrangements overseen by the regulator.  1.7 million came last month when once-whizz-kids, now was-kids Bulb shuttered, necessitating a taxpayer-financed loan administered by company doctors Teneo.

Only four months before Bulb’s crash, prime minister Alexander Johnson opened its City of London offices.  Johnson’s last comment on rocketing power prices was that they were a ‘temporary problem’.

Beside ticking tougher boxes for the regulator on their available cash, today’s package emanating from Canary Wharf of requirements on energy sellers includes:

  • Directors giving the regulator more rigorous assurances about their firm’s internal controls
  • Beefing up existing ‘fit and proper’ disclosures around ownership and internal controls
  • Tougher rules on cash management, particularly on respecting clients’ credit and on forwarding Renewables Obligation payments

From the spring, Ofgem will consult on tougher financial checks to be included in its licencing of retailers.   These may be triggered as suppliers pass first 50,000, then 200,000 customer accounts.

Unless reformed, the next price cap assessment due in April may embed rises as high as a crippling 30% on the average home’s dual fuel bills, analysts Cornwall-Insight have warned.

Revising that calculation method is indeed included among today’s consultation proposals. Ofgem defends the current method as having imposed efficiencies on suppliers, thereby saving customers a cumulative £ 1 billion.

Warning that the coming months will be “difficult for many”, Brearley adds: “Ofgem has worked hard to protect consumers as gas prices have risen by over 500% in under a year”.

“Today, I’m setting out clear action so that we have robust stress testing for suppliers so they can’t pass inappropriate risk to consumers. I want to see more checks on staff in significant roles, and better use of data to help us regulate. We need a regime that can enable a sustainable market, to promote our transition to net zero.

Citizens Advice has been a trenchant critic of the watchdog’s lax market enforcement, and particularly since 2010.  Last week the debt charity alleged Ofgem now leaves Britain’s households on the hook for £2.6 Billion for supplier failures logged since August, averaging £ 94 per home into 2022.

The charity’s boss Dame Clare Moriarty reacted this morning:

“Reform of the energy market is urgently needed. Ofgem’s failure to adequately regulate the sector left it vulnerable to recent price spikes, with the subsequent collapse of 26 firms leaving bill payers facing a multi-billion pound bill.

“Ofgem is right to prioritise building sustainable and resilient business models that can withstand increases in wholesale gas prices. Everyone should be able to trust their energy supplier is fit to operate.”

Read full details of Ofgem’s proposed market reforms here.


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