Delta Gas and Power issued with Provisional Order after stress test reveals weak cash flow

Ofgem has issued non-domestic energy supplier Delta Gas and Power with a Provisional Order, due to concerns about its financial position.

It follows the company failing to pass a ‘stress test’ administered by the regulator, wherein Delta was unable to show that it was sufficiently financially resilient given the current volatile energy market.

The test highlighted that the supplier – which serves 1,690 business customers in the UK – did not have the funding to cope with a number of scenarios set out by Ofgem.

More specifically the provisional order has been issued because:

• Forecasts provided by Delta showed a weak cash flow and funding position, which fail to provide coverage for Ofgem’s ‘stress-test’ scenarios for this winter
• The forecasts contained errors and did not seem achievable in practice
• Delta has not procured a sufficiently hedged position
• The company has not met its 2021/22 Renewables Obligation, and has already been issued with a Final Order in respect of this

Given these factors, the regulator decided that Delta is failing to meet the Operational Capability Principle and the Financial Responsibility Principle. This, Ofgem said, is one of the cornerstones of its regulation of the market, leading it to issue the order in accordance with section 25(2) of the Electricity Act 1989 and section 28(2) of the Gas Act 1986.

“Protecting consumers and businesses is our top priority and, as energy regulator, we set the bar high for suppliers to minimise their chance of failure in a tough market and to ensure customers are protected,” said Cathryn Scott, Ofgem’s director for Enforcement & Emerging Issues.

“Our robust risk assessments examine a supplier’s ability to provide customers with an essential service like energy and we have concerns about Delta’s finances. We regularly monitor suppliers’ compliance with financial resilience, operational and customer service obligations. Where suppliers do not comply with these obligations, we will not hesitate to take action.”

Following the Provisional Order, Delta must immediately:

• Not act in convention to the Operational Capability Principle and Financial Responsibility Principle
• Take steps to improve its operational capability to allow it to respond accurately and on time to future requests for information from Ofgem by 5 December 2022
• Improve its financial position by 5 December so that it can operate effectively under low, central and high financial stress test scenarios as set out in the Stress Testing RFI
• Provide Ofgem with a report confirming ins compliance with the three points above by no later than 5pm on 7 December 2022. This must be accompanied by supporting documentation, providing evidence of the assertions made by Delta in the report

Until these steps have been taken, Delta must refrain from all sales, marketing and customer acquisition activity, and from making any payment, providing any loan or transferring any asset to any third party (although there are some exceptions).

The Provisional Order will be in force until 7 February 2023, if at that point Delta has still failed to meet the obligations, further actions may be taken.

Ofgem is planning to run a statutory consultation later in November on proposed licence modifications, which are designed to further strengthen supplier financial resilience.

This follows a number of changes made by the regulator over the last year to boost the resilience of the market following the substantial volatility. This included the introduction of stress tests in December 2021.

Since the beginning of 2021, more than 30 suppliers have collapsed, as surging gas and power prices towards the end of the year squeezed companies unable to recoup the higher costs from customer bills due to the price cap.

The suppliers that have collapsed include:

The Provisional Order issued to Delta last week follows supplier Foxglove Energy Supply Ltd being issued with a similar Order in July, along with a Final Order being issued to now folded supplier UK Energy Incubator Hub Ltd due to a “number of serious, persistent and recent compliance failings.”

Delta has previously found itself in hot water with Ofgem for failing to make Feed-in-Tariff payments on time, with the regulator announced it owed £46,701 last November. Additionally, the company defaulted out of Elexon’s Balancing and Settlement Code in October 2021 for failing to reduce its Credit Cover Percentage, meaning it unable to take on new customers for a period.

Delta Gas and Power has been approached for comment.