After a total of 3.8 million homes have been impacted by the failure of energy companies, Ofgem has declared firms will undergo rigorous stress testing from January. There is no surprise that these steps have been implemented to protect the millions of people affected by rising energy prices.
One of the many new measures it will implement is preventing supplier startups from growing their customer base until Ofgem is satisfied knowing they are resilient enough to withstand financially troubling times. A supplier will be subject to checks before they reach 50,000 customers, then at 150,000 and 250,000. The next threshold will be between 500,000 and 800,000. This is to make sure that consumers are protected under such hardships as the world faces a gas crisis.
In addition, Ofgem and energy suppliers will agree on a plan to ensure their businesses can grow and thrive in different circumstances. This comes from an article by Ofgem’s Executive Jonathon Bearley, released yesterday, as he states many companies “were not ready to weather a global shock on this scale”.
If the company is unable to survive on the market, the regulator may require the company to prepare a “living will,” which outlines how it will continue to offer customers a good service while making an “orderly exit.” As part of the plan, Ofgem will require providers to adhere to it once the new measures are in place.
Ofgem wants providers to drive innovation in a dynamic environment with the customer at the focus to make sure that bosses are being monitored to meet regulations. To keep these suppliers in check, accountability is the driving force for change.
In response to the Climate Crisis, companies are being pushed to align with more durable practices, putting further pressure on business owners to become more sustainable. If not, prices will continue to rise as they already have by 500% in less than a year, since most of the world’s energy sources become more and more finite.
In the Spring of next year, the government will start working on a consultation on new financial license requirements. Technical controls on “fit and proper” requirements will also be tightened. This comes in response to Ofgem being criticised for their handling of recent energy failings as these new regulations could have been implemented sooner.
The current crisis left almost 4 million customers without an energy supplier since 26 providers collapsed in the last four months, highlighting the much needed tougher regulations. Citizens Advice was one of the key critics of Ofgem during the energy crisis as they suggested a “catalog of errors” led to the rocketing prices of households’ energy bills.
Citizen Advice has raised repeated concerns about the quality of service and financial viability of new suppliers spanning the period 2010-2019. In 2013, it called on the licensing regime that accredits new providers to be reviewed, a new practice planned to come into effect earlier next year.
If these new rules are not set in stone soon, many more households and businesses will see these patterns repeat themselves in the future. Jonathan Brearley also mentioned in his article “We need an urgent step change to bring in the rules and regulation needed to create a stronger, more innovative and resilient energy market.” to prevent such repeated weaknesses causing more catastrophic shortcomings.
According to market analysts at ICIS, UK gas prices closed at an all-time high of 322.5 pence per therm on Tuesday, exceeding the previous peak of just over 298 pence per therm set in October. Many customers report that these are frightening times to live through, as rising prices contribute to a sense of financial insecurity.
Ofgem’s plan to crack down is good news for consumers, according to Matt Vickers, chief executive of Ombudsman Services. He said there have been spikes in complaints about fast-growing energy firms that haven’t prepared for rapid growth. Despite reservations from consumers, a new price cap is scheduled to take effect in April, and Mr. Brearley warned customers to expect a further significant rise in gas prices.
Ofgem has released a new plan for price caps, affecting those on default energy tariffs, where users would be subject to exit fees if they leave early and regulators would set the tariff in the month their contract begins. This practice has been condemned for adding pressure on suppliers leading to many of them collapsing, even though these caps are meant to give customers security in their energy plans.
The giant shakeup from Ofgem is set to come into force as early as January, but fear not as Ofgem and Citizens Advice have outlined on their websites ways you will be protected. When your provider collapses, you may be protected by automatic switchover through Ofgem or they might get the court involved in extreme cases, but you will be informed if this situation arises. Additionally, the introduced price cap is set so if you are automatically switched to a new supplier, your costs are unlikely to increase.
These measures were put in place by Ofgem to protect buyers in turbulent times as our world moves toward a more sustainable and renewable future. As part of the government’s and energy suppliers’ efforts to protect the general public’s interest, new policies are finally being implemented. More information can be found on Ofgem’s official website and on the Citizen Advice website.