New rules for energy companies after billions spent on failed suppliers |  Business news

New rules for energy companies after billions spent on failed suppliers | Business news

The gas and electricity watchdog has announced a series of new rules for energy companies, including requiring companies to hold more capital, similar to those imposed on banks in the aftermath of the financial crisis.

Ofgem proposed the regulations to protect customers and make businesses more resilient after a number of electricity suppliers went bankrupt and cost taxpayers billions.

After the wholesale business came the bankruptcy of electricity company Bulb gas prices skyrocketed last year and left the company lose money on the energy they had to sell to households and businesses at lower prices.

The bailout is expected to be the largest since the nationalization of the Royal Bank of Scotland in the United States financial crisis and cost £6.5bn, according to projections from the Office of Budget Responsibility (OBR).

The Lamp insolvency is just one of dozens smaller collapses leading to criticism for industry regulator Ofgem over how it allowed new energy companies to enter the market.

Under the new rules announced Friday, companies must hold more cash or assets to reduce the risk of going out of business and reduce costs and disruption if they do.

Companies should also set aside the money they need to buy renewable energy in an effort to stamp out the misuse of customers’ funds, which will be closely monitored, Ofgem said.

The proposals have already come under fire from electricity suppliers, most notably the lack of an obligation for suppliers to ring-fence all customer assets.

Client money used to ‘fund day-to-day business activities’

British natural gas owner Centrica strongly criticized this omission and warned that no lessons have been learned from Bulb’s liquidation.

“When customers pay for their energy upfront, they trust their supplier to take care of their hard-earned money. They would be shocked to learn that their money was being used to fund day-to-day business activities, but that is exactly what happens in some companies , and it undermines confidence in the market,” said Centrica CEO Chris O’Shea.

Centrica logo

“We identified this as a major risk for consumers in 2016 – years before the energy crisis – and Ofgem promised to fix it.

“Energy companies need to be sufficiently capitalized by their shareholders so that if they go out of business it is the shareholders who feel the pain, not the UK consumers. It really is that simple, but it seems that lessons have still not been learned. This feels like distance of accountability by a regulator that is not focusing on the right things. If and when a major supplier fails, the recklessness of the decision not to address this issue will be apparent to all.”

Ofgem’s CEO said there was a difficult balancing act to ensure customer protection while not imposing unnecessary restrictions on businesses and hindering investment.

“These proposals provide protections, checks and balances for consumers, suppliers and the entire industry to create a more stable market. We want suppliers to be able to be innovative and dynamic, while also ensuring they are financially stable, and that customers money is protected,” said Jonathan Brearley, CEO of Ofgem.

“This is a delicate balance and while Ofgem wants well-capitalized companies that can weather price fluctuations, we also don’t want to block the market for new suppliers or force suppliers to sit on a lot of capital that they could invest in innovative ideas.”

Feedback is being sought on the proposals and Ofgem expects the reforms to be published next spring.

Leave a Reply

Your email address will not be published. Required fields are marked *