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Energy supplier failures have filled the first few months of this year, but soon new firms entering the market will face extra tests before they're allowed to start selling gas and electricity to customers.
They'll have to prove that they have enough funding, a plan to deliver good customer service, and show that shareholders and managers are 'fit and proper' to hold a license to supply energy.
This should help improve customer service and 'reduce risk of supplier failure', according to energy regulator Ofgem which is introducing the new rules from June.
Changes are also planned to raise the standards among existing suppliers.
Read on to find out about the tougher new rules, and what this means if you're already with a small supplier. If you are paying too much and getting poor customer service, compare gas and electricity prices using Which? Switch to find the best deal for you.
Rules for new energy firms
From June, any firms which want to sell gas or electricity to households will have to:
Show that they have enough funding to run their business for a year
Show how they will provide a 'proper level' of customer service
Explain how they will meet market regulations
Directors and major shareholders of new companies, plus senior managers, will also have to prove that they are 'fit and proper' to be granted a license to supply gas and electricity.
What does this mean for customers of the new energy firms?
These tougher checks should help ensure that customers get better customer service from new suppliers than some have provided so far.
For example, new entrant Iresa was banned from taking on new customers owing to poor levels of customer service shortly before it stopped trading in August 2018. Solarplicity, another smaller and newer energy firm, is also currently banned from gaining customers due to service shortfalls.
Plus the checks 'reduce the risk of disorderly supplier exits', Ofgem said. Several energy firms have failed over the past year, including Economy Energy, Iresa and Spark, leaving hundreds of thousands of customers in turmoil as a new supplier is allocated.
However Ofgem said its checks would not 'provide assurance that a company will remain able to fund its liabilities on an ongoing basis'. There won't be a minimum capital requirement for new firms, but they will have to show that they have enough money for their proposed plans.
Ofgem added that 'new entrants should not be relying on consumers' credit balances'. Plus if their strategy depends on 'loss leading tariffs' (tariffs which are sold at less than the cost of supply), companies must have 'risk management and capital reserves to support' this.
Existing energy firms will also face new checks and rules, according to plans from regulator Ofgem.
It aims to raise standards in the energy market, and intends to set rules about how suppliers manage customers' credit balances, Firms will also have to send more detailed reports to Ofgem.
The regulator will consult on these plans in the summer.
What Which? thinks
Natalie Hitchins, Which? head of home products and services, said: 'Greater checks and transparency are desperately needed to ensure that energy companies are sustainable and deliver customers the service they deserve and people aren't left waiting many months for credit refunds when their supplier goes bust.
'But it is vital that any new tests don't stifle innovation or competition between suppliers. The regulator needs to closely monitor energy firms and ensure customers can still switch to better deals offered by companies providing great service.
'People should shop around for the best energy deal for them. Those unhappy with the service they are receiving should check the results of our energy customer satisfaction survey to find a better-rated supplier. Those switching could also save around £300 a year.
