Ofgem has opened the door for more stringent financial and consumer service-related licensing standards, potentially making it tougher for prospective energy suppliers to enter the market.
Earlier today Ofgem outlined the scope of its review of licensing arrangement for energy suppliers,
placing customer service and financial stability at its centre.
Having pledged to review the arrangements within its Forward Work Programme, revealed in March, the regulator has outlined its approach within an open letter to current and prospective energy suppliers and interest parties.
The letter acknowledges that Ofgem’s decision to open the licensing window has resulted in a significant expansion in the amount of choice open to consumers, the number of suppliers having soared from 27 as of December 2014 to 66 in September last year.
But the licensing regime remains largely based on the arrangements in place when it was introduced 15 years ago in 2003 and has not been reviewed substantially since 2010.
“Given the changes in the retail market since then, we consider it is timely to review the current supply licensing arrangements,” the letter states.
The objectives of the review, Ofgem states, are to apply the appropriate scrutiny and oversight to suppliers entering the market, ensure consumers are protected when suppliers fail to meet their obligations and to strengthen consumer protections in the event of a supplier failing.
But while Ofgem is to consider changes to licensing requirements related to ongoing checks or monitoring of specific suppliers and more concrete protections for consumers whose supplier fails, the most significant changes stand to be in the area of conditions for entering the market.
Ofgem wants to review its approach to licensing to include parameters surrounding customer service standards and is also keen to explore whether there should be additional requirements relating to the financial health of prospective suppliers.
A consultation on the review of licensing arrangements is slated for late summer, however a separate consultation on more immediate licensing changes is to be released “shortly”.
While the review has long been in the making, Ofgem’s view of the energy supply market has no doubt been steered by a number of high-profile incidents relating to independent energy suppliers in the UK.
Utility Warehouse, Iresa and Utilita have all been either investigated or hit with enforcement action in recent months.