Industry voices have mainly reacted positively to the new, tougher market entry tests for burgeoning energy suppliers.
The new rules come into force today (5 July) following a number of new suppliers making dramatic exits from the market.
It is hoped these new tests will prevent such departures in the future.
Some industry voices, while welcoming the tougher tests, have called for Ofgem to go further with the ongoing monitoring of suppliers.
Gillian Guy, chief executive of Citizens Advice, said: “We’ve been calling for a tougher licensing regime for some time. Today’s new rules will help protect customers in the future.
“However, with many existing companies still struggling to provide decent levels of customer service, stricter ongoing monitoring by Ofgem is also needed.
“Lax licensing rules allowed some poorly prepared companies to enter the market. The subsequent failure of these companies and others has left consumers facing a potential bill of £172 million.
“Some customers who owed money to collapsed firms lost consumer protections and faced aggressive debt collection from administrators, who are not bound by the same rules as suppliers.
“The forthcoming energy white paper is an ideal opportunity for the government to protect consumers. Firstly, by making sure administrators are bound by the same debt collection rules as suppliers.
“And secondly, by taking action to limit the costs that suppliers leave behind for consumers to pick up when they fail.”
Richard Neudegg, head of regulation at Uswitch.com, said: “These tougher rules are long overdue, particularly as ten providers have gone bust in the last 12 months alone.
“But few, if any, new energy companies are expected to emerge any time soon. So why isn’t Ofgem focusing more urgently on existing suppliers – several of whom have raised eyebrows with their recent antics?
“To ensure consumers don’t lose faith in the energy industry, there needs to be a new system for triggering a review process right at the point when energy company finances or customer service become a cause for concern.
“Regular stress-tests for suppliers and ongoing fit-and-proper person assessments would reduce the risk of energy customers suffering poor service, or worse, seeing their provider go under.
“We also need to crack down on some of the more outlandish behaviour we’ve seen from a handful of energy companies.
“Some suppliers have brought their own credibility into serious doubt in the last year or so.
“There have been reports of providers upping direct debits without warning over winter, making unclear claims about the amount of interest they pay to accounts in credit, and even blocking customers from switching away for no good reason.”
Stephen Forbes, managing director of SSE Energy Services, said: “It is great that rules are finally in place to protect customers from rogue energy companies entering the market.
“We now hope to see the end to costs of supplier failures being passed to customers. Ofgem should encourage responsible behaviour in the market, and for suppliers to pay their own way.”
Doug Stewart, chief executive of Green Energy UK, said: “I remain concerned that suppliers’ use of credit balances (estimated to be in excess of £800 million) is a ticking time-bomb.
“In this difficult market, it’s an unnecessary risk for both customers and prudent energy suppliers.
“Utilising advance billing and creating a ‘fund’ of £800 million of customer’s money isn’t a safe way to run a business.
“If the business goes bust, who pays? In the energy industry, it’s compliant suppliers who pay via Ofgem’s safety net.
“Instead, suppliers should be operating within the cash flow of their business. I therefore hope that Ofgem mandates suppliers to bill in arrears.
“Tougher rules on new entrants are part of a solution, but what about the loss-making suppliers currently in the market? At what point do they stop playing roulette with customer deposits and start to make a return?
“Last September, we had a record number of suppliers failing to meet their Renewable Obligation payments, a payment they had up to 18 months credit on.
“What’s going to happen this September? It will be another nervous time for some suppliers, their people and most of all their customers.
“And if Citizens Advice is to be believed, all of us all have paid at least £172 million so far to bail out the reckless loss makers.”
Peter Earl, head of energy at comparethemarket.com, said: “When the financial crisis was at its worst and banks began to fail, regulators stepped in to start testing the strength of these companies to ensure they wouldn’t go bust.
“Yet it seems energy companies, which operate essential services for consumers, appear to have received insufficient scrutiny over their finances and customer service provision.
“A company shouldn’t be able to market a product which they cannot afford to sell and properly service. To prevent the regular collapse of energy companies, which has been a feature of the market for the past few years, it is crucial that Ofgem introduces stringent tests.
“Most importantly, if something does go wrong, consumers need to be protected through the swift transfer of their supply to ensure continuity of service.”
Matthew Vickers, chief executive at the Energy Ombudsman, said: “While it’s encouraging to see an increasingly competitive energy market, there are risks for consumers when new energy suppliers fail to deliver to certain standards.
“We therefore support the introduction of stronger controls from Ofgem to enhance the robustness of the energy market.
“Setting standards for new suppliers from the outset – and introducing consequences of falling short of these – should help to foster greater consistency across the sector and avoid some of the problems we’ve seen recently.
“In addition to these changes for new entrants to the energy market, we look forward to Ofgem’s proposals for ensuring tougher rules extend to existing suppliers.
“In our role as the Energy Ombudsman, we’re keen to work with all suppliers to help them improve their customer service and complaint handling more generally.”
Natalie Hitchins, Which? head of home products and services, said: “Energy customers have too often faced a lottery when their supplier goes bust – not knowing if they will face an overnight price increase of hundreds of pounds or potentially have to wait months for credit refunds.
“Energy is an essential service and all consumers bear the costs when firms collapse – so it is vital Ofgem does its job and ensures the market functions properly by fully implementing these stringent tests to root out unfit new suppliers before they take on customers.”