By Jaime Llinares Taboada

 

U.K. regulator Ofgem said Wednesday that all energy suppliers will undergo financial stress testing from January.

These tests will measure the resilience of the firms against a range of scenarios, and Ofgem will require improvements if weaknesses are revealed.

The regulator's proposals are aiming to improve risk management in the energy supply industry. "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. I want to see more checks on staff in significant roles, and better use of data to help us regulate," Ofgem Chief Executive Jonathan Brearley said.

Since the summer, more than four million British customers have seen their retailers go bankrupt as the sector proved to be ill-prepared to withstand soaring wholesale energy prices.

"Record global gas prices this year have exposed the vulnerability of some energy suppliers to price shocks", Ofgem said Wednesday.

At least 25 U.K. gas and power suppliers have collapsed over the last few months. Their customers had to be transferred to stronger firms, or "suppliers of last resort." In the case of Bulb Energy, which supplied 1.6 million households, the company had to enter special administration, funded by the government.

When suppliers cease trading, unpaid costs are ultimately passed on to consumers through the bills. The U.K. government had to set aside 1.7 billion pounds ($2.3 billion) just to ensure Bulb customers continued to be supplied.

"The energy industry's priority is to support customers through these next months, but it's right Ofgem is acting to ensure that in future all suppliers are equipped to cope with volatile costs, otherwise more will exit the market--ultimately leaving customers to pick up the bill," Energy UK, a U.K. industry association, said.

 

Write to Jaime Llinares Taboada at jaime.llinares@wsj.com; @JaimeLlinaresT

 

(END) Dow Jones Newswires

December 15, 2021 06:15 ET (11:15 GMT)

Copyright (c) 2021 Dow Jones & Company, Inc.
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