Ofgem to review financial tests for energy suppliers

Energy regulator Ofgem could introduce stricter financial tests for companies that want to become electricity and gas suppliers.
It is planning to review its approach to awarding supply licenses and the financial tests involved.

The moves come just weeks after the collapse of GB Energy Supply. Around 160,000 customers were transferred to Co-operative Energy under Ofgem’s “supplier of last resort” mechanism.

Ofgem is also considering a system of “stress tests” to calculate if existing suppliers could withstand financial shocks.

Around 50 suppliers

The number of suppliers operating in the UK has doubled over the past three years to reach about 50.

In a speech at Ofgem’s “Forward Look” event in London, chief executive Dermot Nolan said: “With the increasing number of energy suppliers, many of whom are small, and rising wholesale prices, there has been a lot of interest in the sector’s financial stability.

“We have had many representations from those who consider we should require companies to meet more significant financial tests both before and after receiving a license.

“So, we will review our approach to awarding supply licenses, the financial requirements on suppliers, and how we monitor supplier performance later this year.”

But Nolan also said there may be no changes implemented after the review.

“It’s right that we look at this as a prudent regulator. But it’s possible that we will not make any changes following this review.”

‘Oversight is vital’

Richard Neudegg, head of regulation at price comparison website uSwitch, said: “It’s welcome that Ofgem is planning to review the financial checks carried out on providers.

“Since the collapse of GB Energy Supply, which had an impact on 160,000 customers, serious questions have been raised about whether these financial checks are up to scratch.

“Currently eight of the top ten cheapest energy deals, are from suppliers that have been offering retail tariffs for less than two years, so Ofgem’s oversight is vital to provide consumers with the confidence they need when switching to these suppliers.”

In his speech Nolan also said in the first quarter of the year  Ofgem will publish its final decision on current industry code modifications that relate to embedded benefits as well as its proposed approach to the wider reform of network charging.

> Read Nolan's speech in full