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Ovo admits failure to meet Ofgem’s new financial rules

Ovo admits failure to meet Ofgem’s new financial rules
Image Source: By SOPA Images/Shutterstock

Ovo has become the second major UK energy supplier to admit it is not yet meeting new financial requirements set by Ofgem, the industry regulator.

The rules, introduced in March, require companies to hold a minimum level of cash or tangible assets on their balance sheets. The threshold is linked to the size of their customer base and works out at about £115 per dual-fuel household.

The regime is intended to strengthen financial resilience in a sector that saw dozens of suppliers collapse during the energy crisis of 2021–22.

Technical default

Ovo, which supplies around four million households, confirmed it was technically in breach of the rules after a recent change meant intangible assets such as brand value could no longer be included in the calculation.

In a statement, the company said:

“We have taken proactive measures to align with Ofgem’s new capital rules, working constructively to meet the requirements.”

Octopus Energy, the UK’s largest household supplier, disclosed earlier this year that it too was not compliant. Its chief executive, Greg Jackson, has described the new framework as “crude”.

Financial resilience in question

Ovo entered the big league in 2020 when it bought SSE’s household supply arm. Like Octopus, it argues its long-term supply deal with Shell provides significant protection against volatility in wholesale energy markets.

The revelation will reignite debate over how Ofgem balances the need for tighter safeguards with the risk of placing new pressures on companies. The watchdog has said its capital adequacy rules are designed to prevent a repeat of the financial instability that left millions of households facing disruption during the last energy crisis.

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