Ofgem to modify electricity and gas licenses in an attempt to improve standards among energy suppliers

Why the changes?

What are the key changes?

Several of the changes suggested earlier in the year have been adopted and Ofgem will introduce the following new measures:

Principles based requirements – Energy suppliers will have to ensure that they are prepared for growth and to meet their regulatory obligations. To do this they must take action to reduce costs that could be mutualised in future in the event of their failure. This is to ensure the financial impact on other suppliers and consumers is reduced.

“This principle will ensure that Ofgem is able to take timely action where suppliers are not managing this risk effectively. We are also considering the case for further, more prescriptive requirements around credit balances and environmental obligations, and will consult on this early next year,” Ofgem said in its Supplier licensing review.

Checkpoints for suppliers – New checkpoints will be introduced for energy suppliers that are decided by the number of customers they have and the strength of their finances. Ofgem will then scrutinise these to determine the energy supplier’s readiness for growth and its ability to comply with regulations.

If a supplier fails, these checkpoints then Ofgem will be able to impose restrictions on them such as not allowing them to take on more customers until the checkpoint conditions have been met. This is designed to stop a supplier growing too quickly and then facing difficulties further down the road that could result in a collapse and negative impacts on the wider energy industry.

Improved governance – The new requirements will see energy suppliers become more accountable for their actions.

Companies will have to ensure that managers are fit and proper to do their role and will require them to be open and honest with Ofgem.

Customer Supply Continuity Plans – Formerly called ‘living wills’ these ensure that customers are protected, and the impacts of a market exit are reduced on the wider energy market. All energy suppliers will need to create one in order to meet the new licensing requirements.

Also read: What is a Supplier of Last Resort?

The new requirements will come into force from January 22, 2021, the new Customer Supply Continuity Plans requirement will take effect from 18 March 2021.

If you need advice or assistance with licensing, then get in touch with the experts at Dyball Associates. Contact us today. 

Further Reading

Ofgem’s Energy Supplier Licensing Review: what’s being planned part 2

End of the 'Big Six' Energy Suppliers as the rise of challengers’ force Ofgem reclassification

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