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Ofgem proposes new financial and customer service checks for energy firms

Ofgem proposes new financial and customer service checks for energy firms

Gas and electricity suppliers could face checks on their customer service and finances under reforms unveiled by the energy watchdog, following a spate of recent failures.

Ofgem has set out a series of new rules which it says are designed to drive up customer service standards, lower the risk of suppliers going bust and strengthen its 'safety net' scheme, which protects customers if a supplier goes into administration. 

The move comes after more than a dozen energy suppliers failed in the past two years.

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What is Ofgem proposing?

The new rules for existing suppliers would let Ofgem request independent audits of suppliers' customer service operations and finances.

New checks would be introduced for growing suppliers before they hit a certain size in terms of customers. The checks would require them to ensure they have the capability to look after their customers effectively, and if they don't they'd be stopped from taking on extra customers.

It's also proposing introducing further ongoing 'fit and proper' requirements for suppliers, to ensure those in senior management positions are fit to carry out their duties.

And the rules would also require suppliers to ensure that they would be able to cover a proportion of customers' credit balances and Government environmental scheme costs if they failed. This would not affect consumers directly, as the protections already in place to cover all domestic credit balances when a supplier fails would remain. 

Ofgem is running a consultation on its proposals, which is open until Tuesday 3 December.

 Martin: 'These proposed changes are long overdue'

Martin Lewis, founder of MoneySavingExpert.com, said: "These proposed changes are long overdue. The problem here is political posturing to push competition on the energy market, while well meaning, was rushed through, ill-thought-out, and therefore done without the necessary checks and balances needed to make competition work.

"Too many small energy firms were then able to launch on a wing and a prayer. Many clearly didn't have the skills, financial backing or customer service support needed to run a firm providing a near public good.

"It was in March last year, in conversation with the Ofgem boss, that I first warned him that under-regulated small firms who no one should touch were perversely the biggest threat to competition. Too many people have been burnt by poorly managed small companies, and that has knocked many people's faith in energy switching, and risks ultimately driving them back to the same big companies the hope was that they'd escape from.

"A few months ago we were delighted to see Ofgem introduce those checks for new firms – now it is important that similar rules are put in place for existing firms that were already set up before those changes came into being."

What does Ofgem say?

Mary Starks, executive director of consumers and markets at Ofgem, said: "The new proposals will create more accountability in the market, require more responsible and appropriate behaviour from suppliers... and reduce the risk and costs to consumers associated with supplier failure."