New energy suppliers to face tougher tests after company failures leave customers in limbo

Directors must show they are 'fit and proper' to run company providing gas and electricity to consumers, under proposed rules

A string of suppliers including Brilliant Energy, Our Power, Economy Energy have recently gone out of business in recent months, causing uncertainty for their customers (PA)

New energy suppliers must pass stricter tests before taking on customers under proposals designed to stem the rising number of firms going bust.

A string of suppliers including Brilliant Energy, Our Power, Economy Energy have recently gone out of business in recent months, causing uncertainty for their customers.

In a bid to tackle the problem, companies applying for a licence to supply energy will need to demonstrate that they can fund the company for a year, regulator Ofgem said on Thursday.

Currently, almost anyone can set up an energy supplier with minimal checks being carried out. Under the new tests they will have to say how they are going to comply with regulations, and demonstrate intentions to provide an acceptable level of customer service.

Directors and major shareholders and senior managers, will also have to show they are “fit and proper” to hold a licence.

Ofgem hopes this will increase standards and lower the number of companies failing.

Martin Lewis, founder of MoneySavingExpert.com said that the government's attempts to improve competition in the energy market had led to "too many one-man-and-his-dog suppliers".

“This has been incredibly damaging to people’s confidence in switching," he said.

"When I explain how to compare tariffs, I’ve had to constantly urge people to ‘scroll down’ as most of the very cheapest are usually loss-leading providers trying to rapidly build market share to help their cash flow.

"They offer unsustainable prices, and are sometimes unsustainable companies.

Savings of hundreds of pounds are still available by switching to companies with established track records and good customer service ratings, he said.

The list of failed suppliers has grown rapidly in recent months with Spark Energy, Extra Energy, Future Energy, National Gas and Power, Iresa Energy, Gen4U, One Select and Usio Energy all going out of business.

A number of failed companies have received large numbers of complaints from customers about poor service.

Mary Starks, executive director of consumers and markets at Ofgem, said: “In an ever-evolving market, Ofgem's objective is to protect consumers while also ensuring they enjoy the benefits of increased competition and innovation that successful new firms entering the market bring.

“Applying new requirements on suppliers entering and operating in the market will aid us to weed out those that are under-prepared, under-resourced and unfit. This will help minimise the risk of supplier failure and help drive up standards for consumers.

“We will adopt a proportionate, risk-based approach to licensing suppliers and will continue to encourage competition and innovation, including innovative business models, which benefits consumers.”