This week, energy regulator Ofgem issued a Provisional Order to Delta Gas and Power Ltd relating to concerns about their financial position. This was in accordance with section 25(2) of the Electricity Act 1989 and section 28(2) of the Gas Act 1986.
Delta is a non-domestic energy supplier, serving 1,690 business customers in the UK.
Delta has shown through recent engagement that it has been unable to show it is financially resilient in the current volatile energy market following a ‘stress test’ by Ofgem which required all non-domestic suppliers to provide information relating to their financial resilience.
As a result of this exercise, Delta is failing to meet the Operational Capability Principle and the Financial Responsibility Principle, which are cornerstones of Ofgem's regulations.
Business customers of Delta should be reassured that there is no action for them to take. Ofgem will continue to engage closely with Delta on these matters whilst the Provisional Order is in place.
As Ofgem set out at the end of last year all suppliers must demonstrate that they are sufficiently resilient, as every time an energy company fails, this comes at a cost to consumers.
Cathryn Scott, Ofgem’s Director for Enforcement & Emerging Issues, said:
“Protecting consumers and businesses is our top priority and, as energy regulator, we set the bar high for suppliers to minimise their chance of failure in a tough market and to ensure customers are protected.
Our robust risk assessments examine a supplier’s ability to provide customers with an essential service like energy and we have concerns about Delta’s finances. We regularly monitor suppliers’ compliance with financial resilience, operational and customer service obligations. Where suppliers do not comply with these obligations, we will not hesitate to take action.”
The main concern underlying this Provisional Order was Delta’s inability to have enough funding to meet ‘stress-test’ scenarios set by Ofgem so they could effectively run a business for their customers. Specifically:
- Forecasts provided by Delta have demonstrated a weak cash flow and funding position which do not meet certain of our ‘stress-test’ scenarios for this winter
- The forecasts provided contained errors and did not seem to be achievable in practice
- Delta does not seem to have procured a sufficiently hedged position - the price the supplier has previously paid for energy on the markets
- Delta has not met its 2021/22 Renewables Obligation and we have already issued Delta with a Final Order in respect of this.
Next steps are that the Provisional Order requires Delta to immediately:
- Not act in contravention of the Operational Capability Principle and Financial Responsibility Principle.
- By Monday 5 December 2022 take steps to improve its operational capability such that it can respond accurately and on time to any Requests for Information from Ofgem in relation to its financial position and arrangements or otherwise.
- By Monday 5 December 2022 improve its financial position such that it can operate effectively under low, central and high financial stress test scenarios set out in the Stress Testing RFI.
- By no later than 5pm on Wednesday 7 December 2022, provide Ofgem with a report confirming Delta’s compliance with paragraphs 1, 2 and 3 above. The report must be accompanied by supporting documentation to evidence the assertions made by Delta in the report.
This is all part of the essential work Ofgem is doing to make sure the energy market is more robust for everyone, including a recent order against Foxglove Energy for similar concerns.
Notes to editors
Until the terms of the Order are met, Delta must:
- Refrain from all sales, marketing and customer acquisition activity, including the acquisition of any new non-domestic customers or upgrading of all existing non-domestic customers to dual fuel;
- Refrain from making any payment, providing any loan or transferring any asset to any third party unless that payment, loan or transfer is one that Delta: i) is required to make by virtue of a legal requirement and said payment is approved in writing by Ofgem; ii) is essential to Delta’s operation as a supplier of gas and electricity to consumers; or iii) is otherwise approved in writing by Ofgem.
The Provisional Order is in place until 7 February 2023. If Delta fails to bring itself into compliance with its obligations, Ofgem may confirm the Provisional Order (following consultation) if it is satisfied that Delta is contravening and/or likely to contravene its obligations. As part of its continued role as a vigilant and robust sector regulator, Ofgem intends to conduct a statutory consultation later this month on proposed licence modifications designed to further strengthen supplier financial resilience.
Provisional orders are issued in certain circumstances in accordance with the Electricity Act 1989 or Gas Act 1986 and where certain conditions are satisfied. Further information regarding provisional orders is contained within our Enforcement Guidelines.