UK energy suppliers face new audits of finances, customer service

Energy suppliers could face audits of their financial health and customer service standards by Britain’s energy regulator under new proposals to address the slew of smaller electricity and gas companies that have gone bust in recent years.

Suppliers would also have to ensure a proportion of customer credit balances and other financial obligations, such as contributions towards government support schemes for renewable energy generation, could be covered in the event of their failure, under the proposals published by regulator Ofgem on Tuesday. 

Energy companies would have to draw up “living wills” describing what would happen in the event of their failure under the plans, which are designed to ensure standards are strengthened for existing suppliers. Senior managers would also face greater scrutiny over whether they are “fit and proper”. 

New checks would be introduced for expanding suppliers before they hit certain levels of customer numbers to ensure they are able to “effectively serve” their customers. If they fail to pass muster, they could be barred from taking on any new customers. 

Ofgem has already brought in more stringent requirements for companies wishing to enter the market following a string of failures by newer, “challenger” brands in recent years. Larger companies had complained that entry standards were too weak, leading to a proliferation of new electricity and gas suppliers, some of which had poor customer service standards or did not always hedge sufficiently against price movements in wholesale markets. 

Ofgem has also been under pressure to take a closer look at companies that are already operating amid fears there could be further failures in coming months. 

Mary Starks, executive director of consumers and markets at Ofgem, said: “The new proposals will create more accountability in the market, require more responsible and appropriate behaviour from suppliers in the market and reduce the risk and costs to consumers associated with supplier failure.”

The proposals will be consulted on in December.