Ofgem proposes new finance rules for energy companies as sixth supplier this year goes bust

Energy market watchdog wants to make sure new providers coming to market have the resources they need to meet customers' expectations

Several smaller suppliers have gone bust this year, leaving customers unsure about their utilities (Getty/iStock)

Ofgem has proposed that new energy suppliers should be subject to finance tests before coming to market to ensure that firms have enough financial resources to meet customers’ expectations.

The regulator said the tests would be a "safety net" for customers in the event of supplier failure and follows several smaller providers going out of business over the last year.

Ofgem said the tests, which are to be in place by spring 2019, should ensure new entrants are robust while encouraging competition and innovation in the market.

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

Mary Starks, executive director for consumers and markets at Ofgem, said: "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."

The announcement came hours before Extra Energy collapsed on Wednesday, the sixth UK supplier to go out of business this year.

The company issued a notice via its website advising customers to “sit tight and wait until (a) new supplier has been appointed” by Ofgem.

Extra’s demise leaves 108,000 without an energy provider. Commenting on the firm’s collapse, Gillian Guy, chief executive of Citizens Advice, said: “Extra Energy customers should not worry, their gas and electricity will continue as normal. Ofgem will organise a new supplier who will be in touch in due course.

“In the meantime people should take meter readings and avoid switching until a new supplier has been put in place. By switching now people risk losing any refunds they might be entitled to.”

“Today’s news and other recent supplier failures again highlight how essential it is that suppliers operating in the market have sustainable business models.”

Additional reporting by newswires