Utility Week

UTILITY WEEK | 2ND - 8TH FEBRUARY 2018 | 9 Policy & Regulation back-office systems as Future Energy. A lot of the small suppliers are on the same systems, which means that it's relatively straightfor- ward to transfer customers across." However, Utility Week understands this is unlikely to be the case for most small sup- pliers as Future Energy – struggling to pay its licence fees – recently switched to a less popular billing system. Should Ofgem do more? Thomson thinks the supplier of last resort process is "quite robust", despite relying on "a lot of goodwill from the rest of the indus- try". He says it worked effectively when GB Energy Supply went under, protecting its 160,000 customers throughout. But others have concerns about Ofgem's safety net. As part of the regulator's rebooted arrangements, the supplier of last resort has the option to reclaim part or all of the out- standing credit balances of customers of the defunct supplier via an industry-wide levy on energy bills. Speaking to Utility Week in 2016 as Ofgem introduced the process, Green Energy chief executive Doug Stewart questioned: "Why should consumers' bills go up to support entrants who play fast and loose with customer money?" He said the regulator would be better off stress testing aspiring suppliers to ensure they are financially resilient, before they can start trading, than developing new ways to clean up the mess when they fail. Tests for new suppliers Such calls have not fallen on deaf ears. In early 2017 Ofgem promised to review the criteria for awarding supply licences. Since then, the regulator says it has strengthened its monitoring of both suppliers and the wholesale markets. An Ofgem spokesperson told Utility Week: "This strengthened monitoring regime, com- bined with our existing safety net, which ensures that consumers' credit balances are protected in the event of a supplier failure, means we are confident in our approach. "We will be considering the timing of a wider review of our approach to awarding supply licences, as part of next year's work plan." Thomson says, while there are measures in place that prevent companies from enter- ing the market without sufficient resources to meet their commitments – for example, the requirement to post collateral with vari- ous industry bodies – there may be more the regulator can do in this arena. "There is a debate whether there should be a certain amount of money put into escrow or equiva- lent to slightly raise the barrier of creditwor- thiness," he notes. Citizens Advice head of energy Victoria MacGregor goes further, insisting it is still "too easy" to obtain a supply licence: "Com- panies can set up and begin trading without even informing the regulator when they are going to start serving customers. "Ofgem should strengthen the rules around licensing energy companies. For example, there should be much greater scru- tiny of companies' business plans before they are able to start trading," she adds. It remains to be seen whether the closure of Future Energy prompts an Ofgem rethink. As Utility Week went to press, Ofgem announced that Green Star Energy had been appointed to take Future Energy's customers. VAT Ebit Operating costs Other direct costs Environmental/social costs Network costs Direct costs Wholesale costs £1,250 £1,000 £750 £500 £250 £0 The full rollout of competition in the energy market began in the late 90s June 2017 provide both gas and electricity active suppliers compete in the domestic energy market Domestic market shares Electricity 60 49 LARGE SUPPLIER DOMESTIC DUAL FUEL BILL BREAKDOWN OVER TIME Data based on realised costs, as reported by the six larger energy companies in their annual consolidated segmental statements for 2016 2009 (£1,095, inc VAT) 2010 (£1,116, inc VAT) 2011 (£1,057, inc VAT) 2012 (£1,232, inc VAT) 2013 (£1,286, inc VAT) 2014 (£1,190, inc VAT) 2015 (£1,165, inc VAT) 2016 (£1,123, inc VAT) 7 solely supply gas and 4 electricity Gas 19% small and medium suppliers 81% large suppliers 18% small and medium suppliers 82% large suppliers

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