Ofgem: New rules to stop energy suppliers going bust

The energy regulator has introduced tougher tests for new suppliers after a high number of companies went bust during the past year.

The tests will come into force in June and applicants will have to prove they have sufficient funding for their first year and a customer service plan.

Directors and major shareholders will also have to pass a "fit and proper test" before they are granted a licence.

Ofgem said this would reduce the risk of supplier failure and drive up standards for customers.

A consultation will be held during the summer regarding new measures for existing suppliers.

These include new reporting requirements and rules around how suppliers manage customer credit balances.

The regulator said: "Over the last decade more consumers have benefited from competition in the energy market, which has driven down energy prices, helped to raise customer service standards and provided more choice.

"However, in the last 18 months, a number of suppliers have failed, many of whom provided a poor level of customer service."

In the past six months alone, Brilliant Energy, Our Power, Economy Energy, Spark Energy, Extra Energy, Future Energy, National Gas and Power, Iresa Energy, Gen4U, One Select and Usio Energy have all gone bust.

Together, these businesses had close to three-quarters of a million customers.

The new rules were welcomed by Gillian Guy, chief executive of Citizens Advice, who said: "Ofgem needs to take steps to identify those companies not delivering for their customers or that may be in financial difficulty and examine if its current approach to resolving problems it identifies is the right one.

"More firms going out of business remains a possibility. It is essential the regulator acts quickly to better manage future supplier failures.

"We all end up paying through higher bills when energy companies go bust. Without better ongoing monitoring and new rules to manage future supplier failures, consumers will continue to suffer."

Natalie Hitchins, Which? head of home products and services, said: "Greater checks and transparency are desperately needed to ensure that energy companies are sustainable and deliver customers the service they deserve and people aren't left waiting many months for credit refunds when their supplier goes bust.

"But it is vital that any new tests don't stifle innovation or competition between suppliers. The regulator needs to closely monitor energy firms and ensure customers can still switch to better deals offered by companies providing great service."