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Ofgem to stress-test energy suppliers after string of bankruptcies

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By Reuters
Britain's energy regulator needs suppliers to undergo financial stress tests
Britain's energy regulator needs suppliers to undergo financial stress tests   -   Copyright  Thomson Reuters 2021

-British energy regulator Ofgem has set out measures to boost the financial resilience of suppliers, including stress tests and a review of its policy on price caps, after a string of bankruptcies triggered by soaring gas prices.

Ofgem’s role has come under scrutiny after more than 20 British suppliers went bust over the past few months, caught out by record wholesale gas and power prices they were unable to pass on to customers because of the price cap.

A 500% jump in gas prices in less than a year has exposed some energy suppliers’ vulnerability to price shocks, Ofgem said on Wednesday.

“Today I’m setting out clear action so that we have robust stress testing for suppliers so they can’t pass inappropriate risk to consumers,” said Ofgem Chief Executive Jonathan Brearley.

“I want to see more checks on staff in significant roles, and better use of data to help us regulate.”

Energy suppliers will undergo financial stress testing from January to measure their resilience against a range of scenarios.

Suppliers will also be required to perform self-assessments of their management, Ofgem said, adding that it had extended the period of assessment for new supplier licences to nine months.

Ofgem also launched a consultation on possible future changes to the price cap so it can work better in volatile wholesale markets.

It said that changes such as updating the cap quarterly rather than every six months could help to ensure it reflects changes in wholesale prices more quickly.

Ofgem calculates the cap using a formula that includes wholesale gas prices, energy suppliers’ network costs and costs of government policies such as renewable power subsidies. The cap is currently updated twice a year.

In addition, Ofgem opened a consultation on potential short term, temporary interventions, such as availability of new tariffs as well as fees and charges to help to stabilise the market.