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Energy regulator should tighten licence conditions to protect users

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Written by: Paloma Kubiak
15/02/2018
The head of energy at a major charity says the energy regulator needs to tighten its process when awarding supplier licences “as when they go bust, it costs everyone”.

There are more than 70 energy providers in the market but Gillian Cooper, head of retail energy markets at Citizens Advice said the charity is concerned that it’s too easy for companies to start supplying energy before they’re ready to provide an adequate service.

This “can cause misery and cost us all millions of pounds”, she said. The fact that Future Energy went bust was “disappointing but unsurprising” and Ofgem should do more to protect people from poorly prepared suppliers.

However, Cooper said that over the past year, the regulator has tightened up its monitoring of new suppliers, though no changes have been made to the licence process itself.

“Our experience of working with newer suppliers is that some suppliers do not have the systems in place to meet minimum standards. We also see evidence of cash flow problems that suggest some new entrants may not have sustainable business models,” she said.

She said this matters because everyone pays when a supplier fails. In the example of GB Energy, which went out of business in 2016, Co-op Energy took on the 160,000 customers. It claimed £14 million to cover some of the costs of this process. But the cost will be recovered from customers of other suppliers, the equivalent of 52p per household.

Cooper said: “It sounds like a small sum but if even more suppliers go out of business, the cost of these failures will soon add up to something much more substantial.

“In the past year, we have also referred several suppliers to the regulator due to concerns about their ability to safely and effectively serve their customers. It remains our view that it is far too easy to get a supply licence, and the routes open to Ofgem to remove a licence are much too limited. The time has come for this issue to move up the regulator’s list of priorities.”

She added that from the tens of thousands of people who contact the Citizens Advice helpline each year, “dealing with poor customer service is a stressful and frustrating experience. It shouldn’t have to be that way”.

In response, an Ofgem spokesperson said: “We are considering the timing of a wider review of our approach to awarding supply licences, as part of the work plan for 2018/19.

“Our work to protect consumers who don’t switch from being overcharged, especially vulnerable consumers, is rightly our focus.

“We have acted to improve our readiness to take action if suppliers fail, closely monitoring suppliers’ conduct and any potential risks to consumers. We have also strengthened our monitoring of supplier performance and wider risks to the sector.

“Ofgem’s safety net makes sure that, in the rare instance that a supplier ceases to trade, their customers’ supplies of energy are secure and their credit balances are protected.”

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