Ofgem must tighten its licensing regime for new suppliers

"Some companies do not have the systems in place to meet the minimum standards set out in the supply licence"

There are more energy suppliers in the market than ever before, with over 70 now vying for business. But we’re concerned that it’s too easy for companies to start supplying energy before they’re ready to provide an adequate service.

It was disappointing but unsurprising when Future Energy stopped trading.

Our experience of working with newer suppliers has shown that some companies do not have the systems in place to meet the minimum standards set out in the supply licence. We also see evidence of cash flow problems that suggest some new entrants may not have sustainable business models.

This matters because it’s the customers who pay when suppliers fail. GB Energy’s failure alone cost consumers £14 million.

Over the past year Ofgem has tightened up its monitoring of new suppliers, but they haven’t made any changes to the licensing process itself. It’s time they addressed this.

Every year, Citizens Advice is contacted by tens of thousands of energy consumers. Newer suppliers are accounting for a growing share of these contacts, far and above their actual share of the market. Many consumers are telling us that they have experienced long telephone wait times, that companies have failed to respond to emails, or that they’ve been sent inaccurate bills – or in some cases no bills at all. Perhaps more worryingly, the lack of preparedness on the part of new suppliers means that households can be left without an energy supply for extended periods of time. We know that people can sometimes face significant mental and financial stress due to delays in getting their problems resolved.

In the past year, we’ve referred several suppliers to Ofgem due to our concerns about their ability to safely and effectively serve their customers. It remains our view that it is far too easy to get a supply licence, and the routes open to Ofgem to remove a licence are much too limited. The time has come for this issue to move up the regulator’s list of priorities.

Ofgem should tighten up their licensing regime so they can prevent poorly prepared suppliers from entering the market, and remove failing companies from the market swiftly. Doing so will help to protect consumers, and will go a long way to addressing the types of problems we’re currently seeing.

Specifically, we think Ofgem should ensure that new suppliers have four key things in place before being able to start offering services to the public.

• First, they need to have enough money behind them to allow for investment in staff and systems that will provide a good customer experience. Entering the energy market isn’t something that can or should be done on the cheap. They should also be able to pass “stress tests”  to demonstrate that they have the resources in place to survive any volatility in the wholesale market, or a failure to win enough customers.
• Second, they should have realistic business plan which means they always have enough staff to properly handle growing numbers of customers and avoid leaving them hanging on the telephone for hours on end or sending multiple emails that don’t get answered.
• Third, they need to have in place an experienced team of staff who understand how to provide good customer service and with the skills to respond appropriately to the challenges that any new company is bound to experience.
• And finally, they need to show evidence that they understand energy is an essential service, not just another market. New entrants need to have a thorough understanding of all their regulatory obligations. This includes having thought about how they’re going to provide great service to customers with additional needs or vulnerabilities. This can’t be an add-on or something they learn along the way. It needs to be built into their business plan from the start.

All of these requirements should form part of a stronger assessment of new suppliers before granting a company access to the market. It is only by strengthening the licensing regime that we can ensure hundreds of thousands more consumers are not left to suffer at the hands of unprepared and unstable new companies.