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UK regulator proposes reforms to reduce risk of retail energy suppliers failing

The U.K Office of Gas and Electricity Markets is proposing reforms for existing retail energy suppliers to reduce the risk of failure and strengthen the safety net.

The proposed reforms are in response to a dozen smaller firms with close to a million customers recently going bust amid rising wholesale costs. "The new proposals will create more accountability in the market, require more responsible and appropriate behavior from suppliers in the market, and reduce the risk and costs to consumers associated with supplier failure," Mary Starks, the office's, or Ofgem's, executive director of consumers and markets, said in an Oct. 22 statement.

The proposed rules include independent audits of suppliers' customer service operations and financial status. As such, suppliers must demonstrate that they have the operational capability to effectively serve customers at levels of 50,000, 150,000, 250,000 and 500,000 to 800,000. If the firms fail certain checks ensuring they have the operational capability to serve their customers at higher numbers, they would be prevented from taking on further customers.

Ofgem would also scrutinize the "living wills" of suppliers, which would detail planned actions in the event of failure. If a firm should fail, the regulator wants to require that suppliers have arrangements in place to be able to cover a portion of customers' credit balances and government environmental scheme costs.

Ofgem will accept responses to its proposed reforms until Dec. 3.