OfGem introduces financial health test for new energy suppliers. There's a lot riding on its success

The market has seen 11 failures in the past six months. No wonder people are reluctant to switch, even if that means paying more 

James Moore
Chief Business Commentator
Thursday 11 April 2019 13:12
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Energy regulator OfGem has introduced new rules in a bid to reduce the number of failing energy firms
Energy regulator OfGem has introduced new rules in a bid to reduce the number of failing energy firms

The importance of OfGem introducing financial health tests for would be energy suppliers can be seen by clicking on another headline on its website concerning its appointment of SSE, a member of the big six energy firms, to take on customers of the collapsed Brilliant Energy.

Far too many new entrants have ended up in a similarly unhappy place, making victims of their customers who have sometimes been left facing an administrative nightmare, or worse.

Millions of Britons are paying more than they need to for their energy, even after the introduction of OfGem's price cap. That will only be addressed if they are willing to switch.

The collapse of firms like Brilliant Energy - and there have been 11 such failures over the past six moths - has acted as a powerful disincentive towards their doing that.

The new rules, which come into force in June, are designed to address the problem. They will require firms to prove that they can fund their operations adequately for the first year. They will have to pass a fit and proper test, focussing on their mangers and owners. And they will have to prove that they can meet commitments to customer service.

The regulations may serve to discourage some perfectly capable firms from taking the plunge because regulations often do that, even when they are perfectly sensible (as these are).

But the cost will ultimately be outweighed by the benefits if the requirements serve to reduce the disturbing number of failures we have witnessed. That has to be the regulator’s chief concern.

The irony of OfGem selecting SSE to pick up the pieces after the collapse of Brilliant Energy is rich. It is a member of the big six. It was hoped that new entrants like Brilliant would serve to reduce the dominance they have had over the market and lead to lower prices for consumers. The sheer number of failures have ended up pushing them their way, and not just through their picking up the pieces.

People with SSE and its peers (British Gas, EDF Energy, E.on, Scottish Power, Npower) may very well feel that it’s a case of better the devil you know even if it means paying more. Recent events will have strengthened that feeling.

The new rules have elicited a favourable response from Citizens Advice, which is often the first port of call for customers of failing energy firms.

That is a positive sign. But faith in the energy market has taken a serious hit through the rash of recent failures. It wasn't exactly high to begin with.

There is a lot riding on the success of the new regime.

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