A number of industry voices have welcomed news that energy regulator Ofgem will roll out tougher market entry tests from June.
Ofgem made the announcement this morning (11 April) and confirmed that the new measures will ensure companies are subject to more “stringent” tests.
Going forward companies will have to demonstrate to Ofgem they have “sufficient funding” and provide a customer service plan.
In recent years, a number of suppliers have failed which has prompted widespread concern about the regulations affecting new entrants.
Gareth Kloet, director of energy at automated switching service Weflip, said the move in principle sounded “like a step in the right direction for Ofgem”.
He added: “While supplier failure has so far affected a relatively small number of energy customers – circa 800,000 (around 3 per cent) of households – it has been happening with increasing frequency over the last 18 months, and this can clearly cause some anxiety for people who had done the right thing, i.e. shopped around and switched to a better deal, so these stricter tests will no doubt provide a little peace of mind to these customers.”
Stephen Forbes, chief commercial officer and co-head of SSE Energy Services, also welcomed the move.
Forbes said: “It’s welcome that Ofgem is introducing tougher, new entry tests for companies and directors looking to join the energy market.
“These changes are urgently needed to protect customers from poor customer service and unsustainable pricing.
“We would like to see Ofgem go further and now introduce regular checks for suppliers already in the market, ensuring they remain fit for purpose, similar to those used by the Financial Conduct Authority for financial institutions.
“Our hope is these changes rid the market of unscrupulous suppliers and directors while creating a more stable and competitive market for customers.”
Meanwhile Matthew Vickers, chief executive at the Energy Ombudsman, said:“It’s good that we have a vibrant and competitive energy market but, as we’ve seen with recent supplier failures and customer-service problems involving small suppliers, there are some risks for consumers.
“We therefore think it’s right that Ofgem is putting stronger controls in place and taking action to raise the entry barrier for new market entrants.
“Ensuring that new suppliers know from the outset what they’ll need to do on the customer service front – and the consequences of failing to meet the expected standards – should help to avoid some of the problems we’ve seen in the sector recently and ensure that consumers get the protection they need.
“In addition to the changes announced today, we look forward to Ofgem’s proposals for greater scrutiny and oversight of existing suppliers.
“As the ombudsman we are keen to work with suppliers of all shapes and sizes to help them improve their complaint handling and customer service more generally.”
Stephen Murray, energy expert at MoneySuperMarket, said: “Energy prices can be a volatile beast and the ability of a supplier to be able to manage this volatility on the wholesale market and ultimately supply the gas and electricity to people’s homes should be fundamental to its business model.
“However, Ofgem is finally recognising that this has not been given enough attention over recent years and now needs to be addressed.
“The safety net for people has been a positive over the last year, ensuring both supply and money is protected, but people have a right to feel that their supplier has sufficient scrutiny from the industry regulator.”
Rik Smith, energy expert at Uswitch, added: “It’s right that Ofgem has toughened the rules for new energy companies.
“With over ten supplier failures in the last 18 months, consumer confidence was in danger of being undermined, in spite of the supplier of last resort process and competition in the market working well.
“However, many will question whether these reforms go far enough and how they will work with new requirements on existing suppliers to meet customer expectations on service and financial stability.
“And while proposals for a ‘fit and proper person’ test for company managers and enhancing the stability of existing suppliers are welcome, we are yet to see how effective these will be in practice.”
Ofgem will also launch a consultation on “ongoing requirements” for suppliers currently in the market in the summer.