By Nicholas Earl
Ofgem has announced toughened capital requirements for suppliers, as it looks to ensure energy firms are financially resilient in the face of future market shocks.
The watchdog has unveiled a new capital target for suppliers of £115 of net assets per customers, with a floor of zero pounds.
The new rules will come in from March 2025 and will mean companies will be required to have a level of capital that will make them more resilient to any sudden changes in market conditions, such as the price shock in 2021 which prompted the failure of 30 suppliers, including the de-facto nationalisation of Bulb Energy.
This follows Ofgem’s open letter to suppliers on 4 July, where chief executive Jonathan Brearley warned companies against paying dividends above recapitalising.
It also comes after the watchdog’s decision to require suppliers to ringfence both renewables payments and a portion of their customer credit balances.
The strengthening of capital rules is one of a raft of proposals unveiled today by Ofgem, with the regulator unveiling new plans to boost customer service.
It is calling for earlier interventions to identify and offer support such as temporary repayment holidays for customers struggling with bills, and 24/7 emergency support for households cut off from their power or gas supply due to issues with their supplier, such as meter faults.
Ofgem further wants to compel suppliers to make information available on customer service performance, to help inform consumer choice when switching, and further drive improvements in service.
It has also confirmed plans to intervene in the retail market for businesses, where its scope is currently more limited.
Ofgem is asking the government to consider further protections in areas it doesn’t have the power to regulate, like energy brokers, and for businesses to be given access to the energy ombudsman.
The watchdog is now preparing to consult on reforms to energy bills, so that they spell out what is being paid to energy brokers, and is in favour of allowing businesses to resolve disputes through a redress scheme.
Neil Lawrence, director at Ofgem, said: “Good customer service is important for all consumers, but it can make a critical difference to welfare and the safety of the most vulnerable.
“While we have seen good practice from some suppliers, we expect every company to raise the bar to provide a consistent service that customers can rely on – and this mission should be driven from the top.”
The bevy of proposals this morning comes ahead of winter, with households set for considerably less support from the government as they grapple with bills nearly double the price of pre-crisis norms.
Ofgem is also expected to announce further findings later this summer, including further market compliance reviews such as on the use of prepayment meters in the industry.
