Energy supplier Utilita has accused Ofgem of placing smaller firms at risk through new rules requiring a capital buffer be kept to shield against volatile market conditions.
Set to be introduced in March 2025, the new financial resilience measures mean suppliers will have to keep £115 aside per customer to protect against future price shocks.
Though the rules are ultimately designed to prevent suppliers from collapsing, after 30 failed between 2021 and 2022, Utilita argued the rule change could do quite the opposite.
Such change threatens to “put fundamentally resilient suppliers […] in an unsustainable position for minimal regulatory benefit”, the supplier to some 800,000 people said.
It could make “survival in the market difficult” for smaller firms, given their “limited options” for raising extra finance, the group added in a filing with the Competition and Markets Authority (CMA).
Under the rules, firms could be prevented from taking on new customers or paying out dividends if they fail to keep to the buffer threshold.
This could place larger companies, such as Centrica PLC (LSE:CNA)-owned British Gas, at an advantage given easier access to loans or other financing options, Utilita added.
Utilita has requested permission from the CMA to appeal the new Ofgem rule, with a decision on whether the case can proceed expected this month.
Ofgem told the Financial Times that the new requirement would “ensure that companies are more resilient to any sudden changes in market conditions”.
Rising wholesale prices following the pandemic were spurred on by Russia’s invasion of Ukraine in early 2022.
This in turn left many suppliers that had failed to buy energy for their customers in advance exposed to rising costs while being unable to hike bills due to the energy price cap.
“Reasonable profits are essential for a sustained energy sector, but all suppliers must prioritise financial resilience,” Ofgem added.