Ofgem consults on tougher tests for new energy suppliers

Ofgem will be outlining plans to tighten up controls on how suppliers handle customers’ balances this year and is exploring moves to extend regulation to energy intermediaries, its chair has said.

In the keynote speech at the regulator’s “Energy of the Future” speech in London this morning (10 January), Professor Martin Cave said Ofgem is already consulting on introducing customer service and financial tests for new suppliers.

But he said that the regulator will be consulting this year on further changes to the licensing regime for suppliers, which has been placed in the spotlight by the failure of a string of energy companies in recent months.

Cave said the upcoming consultation would cover the way suppliers accrue, hold and use customers’ credit balances.

It would include how suppliers make the payments they owe under the Renewables Obligation scheme.

He said: “Arguably too many suppliers have come into the market with unsustainable business models.

“We want competition to lead to sustainable and ‘everyday’ low prices – not rate-chasing churn where customers have to switch every year to avoid a massive hike in prices.

“We want to see greater competition driving up the quality of customer service – but with a reliable minimum standard.

“And we want all suppliers to pay their way.”

Cave also told delegates that the regulator must decide whether it is “appropriate” that intermediaries, many of which operate in other sectors besides energy, are largely unregulated.

Other issues that the regulator would address include removing the restrictions that mean energy can only be sold by the kWh, enabling customers to contract with multiple suppliers and the obligation on suppliers to supply any customer.

He said that the regulator’s priorities for the future regulation of the retail market must include ensuring that new consumer protections reflect market changes and the risks posed by new services and market players.

And while there must be specific safeguards to guarantee that customers receive at least a minimum level of customer service and are protected from exploitation, Cave said regulation must also unlock the “full benefits of innovation” for consumers.

He also said that Ofgem, which was widely criticised for not reacting speedily enough to calls for a cap on standard variable tariffs in 2017, must become “more agile”.

“This means getting out of the way when appropriate where new products, services and business models can benefit consumers.

“But it also means intervening speedily to stop behaviour that harms consumers.”