Energy supplier seeks to overturn new financial resilience rule

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A leading British household energy supplier is seeking to overturn planned new rules aimed at boosting suppliers’ financial resilience following a series of collapses.

Utilita, which has about 800,000 customers, argues that regulator Ofgem’s planned capital buffer requirement will make “survival in the market difficult” for challenger suppliers and should be quashed.

It has asked the Competition and Markets Authority for permission to appeal against the rule in what will be a major test of the regulator’s efforts to reform the market.

The new requirement “puts fundamentally resilient supplier . . . in an unsustainable position, for minimal (if any) regulatory benefit”, the company said in papers submitted to the CMA and published last week.

Ofgem announced new financial resilience measures in July as part of its efforts to prevent a repeat of the collapses of 30 suppliers in late 2021 and early 2022 that followed a sharp rise in wholesale gas prices.

The market rout added £94 to every British household’s energy bills last year to cover the costs of rescuing customers from failed suppliers, and led to criticism of Ofgem for failing to regulate the market properly.

Under the changes due to come into force in March 2025, suppliers will be expected to hold a capital buffer of £115 per customer, known as the “capital target”.

If the company’s buffer falls below this threshold, it will have to submit a plan to the regulator setting out how it will recover, and it could be prevented from taking on new customers or paying dividends until it does so.

Utilita argued that it had “limited options” to raise extra finance to meet the capital target because general market challenges make equity investment difficult while the type of debt that meets Ofgem’s requirements “is very unlikely to be commercially available”.

Restricting companies’ ability to take on new customers or pay dividends if they fall below the threshold would make it even harder for them to raise the cash to recover, Utilita said.

The company added that the requirement put challengers such as Utilita at a disadvantage to rivals that are part of larger energy groups and have access to financial guarantees or loans from parent companies.

“The decision [on the capital target] will make survival in the market difficult for the very challenger entities which drive innovation,” it said. Hampshire-based Utilita is majority owned by its founder and chief executive, Bill Bullen.

Utilita argues it is a resilient company even without the new rules, as most of its customers are on pre-payment meters and it manages its exposure to wholesale prices surges.

“Utilita, and suppliers like it, (a) need less reserve capital to operate resiliently; but (b) cannot readily raise more capital than they need,” it said.

Ofgem has until September 7 to respond to Utilita’s application. The CMA is due to decide this month on whether to grant Utilita permission to appeal.

In a statement to the Financial Times, Ofgem said its new rules would “ensure that companies are more resilient to any sudden changes in market conditions”.

It added: “Reasonable profits are essential for a sustainable energy sector, but all suppliers must prioritise financial resilience”.

Utilita confirmed it had requested permission to appeal, but declined to comment further.