Ofgem failures ‘at considerable cost’ to households – watchdog
Ofgem’s failures to effectively regulate energy suppliers as early as 2018 are at “considerable cost” to households, the spending watchdog has said.
Despite energy retailer financial resilience issues emerging in 2018, Ofgem has not tightened requirements for new suppliers until 2019 or for existing suppliers until 2021, when wholesale gas prices and electricity had risen to unprecedented levels, the Public Accounts Committee (PAC) said.
Some 29 energy suppliers have gone bankrupt since July last year, affecting around four million homes.
Customers had to bear the £2.7billion cost of outages at an additional £94 per household, a cost which “will most likely increase”, the PAC said in a report.
The committee concluded that this was due to Ofgem’s “inability to effectively regulate the energy supplier market”, adding that the regulator “has failed to strike the right balance between promoting competition in the market energy suppliers and ensuring that energy suppliers were financially resilient”.
It found that the price cap “provided only very limited protection to households against increases in the wholesale price of energy”, noting that Ofgem expected prices “to get worse considerably until 2023”.
The Department for Business, Energy and Industrial Strategy (BEIS) and Ofgem are expected to ‘consider the costs and benefits of price caps from a consumer perspective’ before making decisions on the future of the energy price control.
PAC said the position of vulnerable customers, who are already paying higher energy prices, was “unacceptable”.
And he said he was unconvinced that Ofgem “still has the skills and capacity it needs to play a more proactive role in regulating the energy supplier market”.
PAC chairwoman Dame Meg Hillier said: ‘It is true that global factors have caused the unprecedented gas and electricity prices which have caused so many energy supplier failures during the year last, at such terrible cost to households, but the fact remains that we have regulators to set the framework to sustain us for bad times.
“The problems in the energy supply market were apparent in 2018 – years before the unprecedented price spike that triggered the current crisis, and Ofgem has been too slow to act.
“Households will pay dearly, with the cost of bailouts adding to record and rising bills.
“PAC wants to see a plan, within six months, of how the government and Ofgem will put customer interests at the heart of a reformed energy market, driving the transition to net zero.”
Rocio Concha, director of policy and advocacy at Which?, said a “long-term” solution to rising energy costs is clearly needed.
“While additional support and the energy price cap guarantee has brought short-term relief to many households, it is clear that we need a long-term solution to deal with the surge. bills,” she said.
“The government and the regulator must urgently undertake a thorough review of energy pricing – including price caps – in order to put in place a fair and affordable system for consumers.
“The government must also develop a program to rapidly improve the insulation of homes – as this will help reduce people’s energy costs for years to come.”