Three household energy suppliers including Britain’s biggest, Octopus, have yet to meet financial resilience targets set after the gas crisis in which dozens of companies went bust.
Octopus Energy admitted it was yet to meet Ofgem’s minimum “capital target”, which came into force two weeks ago, and was instead working on a regulator-approved plan to achieve it. Ovo Energy, Britain’s fourth largest supplier, was the only big supplier that refused to say whether it had hit the target. The other members of the big six, and five of the leading smaller suppliers, all confirmed they had done so.
In an interview with The Times, Jonathan Brearley, chief executive of Ofgem, said: “You’ve got companies who’ve met all requirements and some who are on a transition plan. The fact is that the retail market is far more resilient now than it was. It’s going to take time to get the sector to where we want it to be ultimately.”
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Almost 30 energy suppliers collapsed when gas prices soared in 2021-22, costing households billions of pounds and prompting Ofgem to introduce financial resilience rules to reduce the risk of future failures. In 2023 it set a “common minimum capital requirement”, taking effect from March 31 this year, “so that all suppliers have a financial buffer to absorb severe but plausible market shocks”.
The requirement comprises a capital floor of £0, which must be maintained at all times, and a capital target of £115 adjusted net assets per dual fuel equivalent customer. Suppliers can be below the target if they have an approved plan to achieve it, as Ofgem has said they “may need to be below the capital target in times of stress” and it would take time for some suppliers to recapitalise following any crisis.
The regulator said 20 of 23 suppliers had capital in excess of the target and the other three, which it declined to name, had approved plans in place to meet it. Rebel Energy, which collapsed last month with 90,000 customers, had met the target.
Octopus said it was “fully compliant with Ofgem’s new financial resilience rules”. It had a balance sheet of £1.7 billion and a trading arrangement with Shell “that eliminates the key financial risks to which most suppliers are exposed” and gave it “greater capacity to absorb shocks than many longer-established companies”.
It said it was “a regulatory distortion that publicly listed companies and those owned by foreign governments are able to simply write themselves a parental guarantee” to meet the target, an option “not open to Octopus despite being near-investment grade and having shareholders amongst the largest and most respected funds in the world”.
Ovo’s chief executive has said that the group is preparing to raise hundreds of millions of pounds in capital.
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Brearley also disclosed that Ofgem was considering updating the price cap on energy bills less frequently and said that his backing for zonal energy pricing was a “personal” view as the regulator remained divided on the issue.
Writing in The Times, Chris O’Shea, the Centrica chief executive, said he opposed zonal pricing which “risks deep inequalities and higher prices for consumers in regions with fewer renewables”.
