Citizens Advice is calling for tighter checks on small energy suppliers following the collapse of Future Energy last month.

The charity said some companies are not able to meet the “minimum standards set out in the supply licence” and has called on Ofgem to change the licensing process.

It has highlighted “associated risks” involved with running an energy business and has warned the cost of these failures are adding up.

Early estimates show Future Energy customers could be owed up to £250 each. The company is thought to have had “credit balances” of about £2.5 million from existing customers and £500,000 from past customers, according to reports in The Times.

Victoria MacGregor, head of energy at Citizens Advice, said: “It’s currently too easy to get a licence to start supplying energy. Companies can set up and begin trading without even informing the regulator when they are going to start serving customers.”

She said there should be greater scrutiny of a company’s business plan before it begins trading.

Citizens Advice believes Ofgem should ensure new suppliers have four key things in place before being able to start offering services to the public. These include having substantial financial investment in staff and systems; a realistic business plan; experienced staff and evidence it understands energy is an essential service.

Future Energy’s 10,000 customer base has been taken on by Green Star Energy. Ofgem said all customers will have their balances protected as part of the safety net process.

It said Green Star Energy will meet much of the cost and the rest will be covered by an industry levy.

Ofgem stressed it cannot comment on figures used in the individual case. The regulator said it gave bidding suppliers “indicative figures” on customers’ credit balances as part of the competitive process.

A spokesperson from the regulator, said: “Now Green Star Energy has been appointed they will work with the administrators of Future Energy Supply to work out the exact amount of credit balances, using more information from their billing and other systems.”

Greg Jackson, chief executive of Octopus Energy, added: “Although some new entrants have proven unsustainable and others have woeful service and practices, challengers repeatedly come top of surveys of satisfaction and service.

“Whilst it’s easy to point to failures such as Future and GB, the best challengers are well run and well backed, saving consumers hundreds of pounds a year compared to the legacy businesses, and delivering dramatically better service.”

To read the opinion piece from Citizens Advice click here.

What to read next