After a number of failures, a leading British household electricity supplier wants to reverse new rules that were intended to boost the financial resilience of suppliers.
Utilita has around 800,000 clients and argues the regulator Ofgem’s planned requirement for capital buffers will make it “difficult to survive in the market” for challenger providers.
The Competition and Markets Authority has been asked to grant permission for the appeal. This will be an important test of the efforts made by the regulator to reform the market.
The new requirement “puts fundamentally resistant supplier in the spotlight”. . . The company stated that it was in an untenable position for a minimal (if any), regulatory benefit in documents submitted to CMA last week.
Ofgem announced in July newfinancial resilient measures as part of their efforts to prevent the repeat of 30 suppliers’ collapses in late 2021 or early 2022, which followed a sharp increase in wholesale gas prices.
Last year, the market collapse added £94 per household to their energy bills to cover the cost of saving them from failing suppliers. Ofgem was criticized for not properly regulating market.
The “capital target” is the new requirement that will come into effect in March 2025. Suppliers are expected to have a buffer of £115 for each customer.
If the buffer of the company falls below this threshold it must submit to the regulator a plan outlining how it will recover. It could also be prohibited from accepting new customers or paying dividends.
Utilita claimed that it only had “limited” options to raise additional finance in order to meet its capital target, because equity investments are difficult due to general market conditions. Meanwhile, the type of debt required by Ofgem is “very unlikely to be available commercially”.
Utilita stated that limiting companies’ ability take on new clients or pay dividends when they fall below a certain threshold would make them even more difficult to raise cash for recovery.
The company said that this requirement placed challengers like Utilita in a disadvantageous position compared to competitors who are part of large energy groups, and therefore have access to financial guarantee or loans from their parent companies.
The decision will make it difficult for challenger companies to survive in the market, which is what drives innovation. Bill Bullen, the founder and CEO of Hampshire-based Utilita, owns the majority.
Utilita claims that it would be a resilient business even without the new regulations, since most of its clients are using pre-payment meters. It also manages its exposure when wholesale prices rise.
It said that “Utilita and other suppliers need less capital for resilience, but they cannot easily raise more than what they need.”
Ofgem must respond to Utilita by September 7. The CMA will decide whether or not to allow Utilita to appeal this month.
Ofgem stated that its new rules will “ensure companies are more resilient” to sudden changes in the market conditions.
The report added that “responsible profits are necessary for a sustainable sector of energy, but all providers must prioritize financial resilience”.
Utilita confirmed that it had asked for permission to appeal but declined to provide further comment.