Ofgem could bring in ‘fit and proper’ tests and hedging controls for energy suppliers
Energy market regulator Ofgem could introduce “fit and proper” tests and capital requirements for suppliers following the collapse of over 20 UK energy firms since September – affecting four million customers.
Chief executive officer Jonathan Brearley said regulation would need to be toughened to ensure suppliers can survive unpredictable energy market shocks such as the soaring wholesale prices currently plaguing the market.
He told the House of Lords reforms that there will be a “new reality” after the energy crisis which will require “fit and proper” tests for suppliers, with an emphasis on capital requirements.
He said: “We do need a retail sector that is able to handle shocks like this in the future. In my mind that means making sure we have a very sharp focus on capital adequacy, but also the rules in place as to what you do when someone breaches those rules.”
The energy chief’s appearance before the Industry and Regulators Committee follows Bulb sinking into administration and de-facto nationalisation.
The Government is reportedly set to allocate £1.7bn over the winter to keep the energy firm ticking over until a buyer can be found next spring.
Brearley also argued a balance needed to be struck to ensure companies were not too exposed to commercial risks, but the market remained competitive.
He said: “Your commercial strategy is your own – how much you want to hedge and how much risk you want to take. If you take that risk you will need to have the capital available to underpin a wide range of scenarios.”
There are growing concerns the market could be reduced to less than 10 suppliers – with more and more supplies set to fall this winter.
Meanwhile Investec has called for inquiry into the energy crisis, with the group estimating UK households could be on the hook for £3.2bn.
Ofgem’s latest pledge to provide more stringent tests to the energy sectors follows previously announced plans to review the consumer price cap which has also proved difficult for collapsed energy firms to navigate over the past three months.