Ofgem to tighten rules for new energy suppliers to protect consumers from bankruptcies

Ofgem will make it more difficult for new suppliers to enter the energy market after a string of bankruptcies and complaints over poor customer service.

The energy regulator has proposed rules which would force new players to show they have enough resources to operate for at least a year.

Fresh suppliers will also be asked to draw up plans to ensure they meet customer service requirements, especially when dealing with vulnerable people.

The regulator is also consulting on whether it should tighten tests to determine if providers are fit and proper to hold a licence.

Ofgem said the measures, which will be in place in late spring of next year, will make sure that new suppliers are ready to enter the market.

Mary Starks, executive director of the regulator's consumers and markets division, said: “Complaints against some suppliers have been rising recently and we have had to step in when others have ceased trading.

“Our proposed new tests for suppliers wanting to enter the market will ensure consumers will be better protected against the risk of poor performance, while still allowing more competition and innovation in the energy market to benefit consumers.”

The number of suppliers on the energy market has increased rapidly in the past decade as the government tried to encourage competition for customers.

In June there were 73 suppliers for UK households and businesses to choose from, up from 14 in 2011.

But the sector has been blighted with bankruptcies, with five suppliers going out of business this year alone, including Iresa, which had 100,000 customers when it collapsed in July.

Despite only representing about a quarter of the market, over 40 per cent of customer complaints are about small providers, energy ombudsman chief executive Matthew Vickers said.

“Small suppliers have brought innovation and competition to the energy market, but there is a need for checks and balances to protect consumers,” he added.

The news comes after Ofgem announced it was investigating two small suppliers that have failed to pay into a green energy scheme. It is also chasing payment from two others.

Alex Neill, a managing director at consumer group Which, said: “Measures to ensure suppliers are fit to enter the market and provide good levels of customer service are a positive step. Customers deserve to get an excellent quality of service and more must be done to encourage improved standards across the board.”

Gillian Guy, chief executive of Citizens Advice, called for more action: “While the proposed new rules will protect consumers from unfit firms getting a license in the future, there are still poorly performing suppliers operating now. Ofgem must take appropriate steps to remove these firms from the market.”