Members of Parliament have questioned whether the energy regulator, Ofgem, is a good fit for oversight of the industry after it has been blamed for incurring billions of pounds for British households as a result of supplier bankruptcies.
Politicians on the powerful Public Accounts Committee said Ofgem failed to manage the sector at “significant cost to bill payers” in a debit report on energy supplier regulation.
The regulator has been blamed for failing to prevent the collapse of 29 energy suppliers since July 2021, affecting nearly 4 million households. The failures cost consumers an estimated £2.7 billion, or an additional £94 each, by charging their bills to recoup the cost of managing customer transfers to a new supplier.
That number doesn’t include the billions the government has spent bailing out Bulb Energy, by far the biggest supplier to fail, with 1.5 million customers. Rival Octopus Energy picked up the Bulb late last month after nearly a year in a government-run administration.
A wave of suppliers collapsed during the energy crisis due to a surge in wholesale gas prices last year, which were then exacerbated by the Russian invasion of Ukraine in February. The MPs report accused Ofgem of being “too slow to act” to ensure suppliers were financially resilient, even before the crisis.
The regulator has tried to increase competition by opening the energy market to new suppliers. However, the introduction of a cap on energy bills under Theresa May’s government, along with rising wholesale gas prices, exposed the weak budgets of many companies.
Ms. Meg Heller, Member of Parliament, Chair of the Committee said: “It is true that global factors have caused unprecedented gas and electricity prices that have caused many failures of energy suppliers over the past year, at great cost to households. But the fact remains that we have regulators to frame us to support us in Troubled times.”
She added, “Problems in the energy supply market were evident in 2018, years before the unprecedented price hike that sparked the current crisis, and Ofgem was too slow to act. Households will pay dearly, with the cost of bailouts added to the record and spiraling bills. To see a plan, within six months, of how the government and Ofgem will put customer interests at the center of the reformed energy market, leading to a transition to net zero.”
The committee said it was “not convinced that Ofgem so far has the skills and capabilities it needs to take a more proactive role in regulating the energy supplier market”. The report showed Ofgem, led by CEO Jonathan Brierley, has increased the size of its workforce from 816 employees in 2018 to 1,400 now and has asked the Treasury for more resources.
The committee made a series of recommendations including a review of the “supplier of last resort” process, which ensures continuity of supply when a supplier fails.
It also wants Ofgem to show how it has increased its ability to assess suppliers’ financial risks and has called for a review of its price cap.
The cap has been sidelined by the Energy Price Guarantee, a policy introduced by Liz Truss to limit the average household bill at £2,500 for six months. However, Ofgem’s price cap will come back into effect for those who do not receive further support from April.
Ofgem said: “The sheer scale and frequency of the once-in-a-generation global energy price shock means that supplier failures have been seen across the world. However, the supplier scheme of last resort has served as a vital safety net for British consumers, ensuring that they continue to receive energy When their supplier failed and they kept their credit, this safety net inevitably incurred costs.
“Given this winter, prices remain volatile, but the market is now in a much more resilient position, in part due to the strong steps we have taken to reduce the risk of supplier failure in the future and raise the level of entry for new suppliers. Our proactive compliance reviews have deepened the practices of all our suppliers. energy, which enabled us to demand improvements wherever it was lacking.”