Britain’s energy market regulator was for years asleep at the wheel as it allowed under-capitalised new suppliers unsustainably to break the Big Six’s dominance of the UK’s power market, MPs on Parliament’s energy select committee report today.
In an eviscerating attack on recent Ofgem management and ministers, the Conservative-dominated committee says the regulator failed “for a decade” to enforce rules it had already at its disposal. Instead it granted licences to poorly financed entrants whose fragile business models it did not understand, and which failed as wholesale gas prices rose in step with the world’s emergence from Covid.
UK bill-payers have been left paying an extra £96 per account for last year’s unprecedented collapse of 29 suppliers serving 2.4 million customers, rescued at a total cost of £2.7 billion to surviving licencees under Ofgem’s ‘supplier of last resort’ fallback.
The committee does not hold back. “Ofgem has proved incompetent as the regulatory authority of this complex market, thereby costing taxpayers billions of pounds. The scale of failure and the cost exposure to taxpayers is only comparable to the financial crash of 2008”, today’s report states.
“Ofgem’s negligence has contributed to higher energy bills, which is in complete contradiction to its mandate to act in the interests of consumers”, the MPs conclude.
Under pressure from energy ministers, Ofgem and its former director Dermot Nolan delayed until June 2019 its comprehensive view of how it granted and monitored licences to suppliers, including testing the competence and market experience of directors, the MPs note.
Neglecting to carry out its own proactive reviews, the regulator instead relied on backwards-looking reports from the suppliers’ paid-for auditors for insights into licencees’ financial stability.
Independent consultants Oxera investigating in May this year for the committee found that, in the MPs’ words, “Ofgem has no proper frameworks for defining and measuring what consumer interests are or what effective competition means”.
The D-BEIS monitoring backbenchers today express surprise and concern at Ofgem’s “absence of robust quantitative impact analyses, which should have been essential in underpinning key decisions on regulating the retail market”.
“That important decisions on tackling risky supplier behaviour were taken by operational teams rather than the Board, demonstrates a complete failure in corporate governance”, says the report.
Though chaired by Labour’s Darren Jones, six of the committee’s eleven members are Conservatives. Conservative governments since 2010 share blame in today’s report.
“The Government prioritised competition over effective market supervision, failing to recognise the fundamental importance of energy supply and maintain sight over Ofgem’s actions”, says the committee.
Failing upwards: Bulb’s Hayden Wood
Now defunct Bulb, with 1.7 million customers, was the biggest single failure. Only this month, nine months after it was rescued under Ofgem’s ever first enactment of its Special Administration Regime, did Bulb co-founder Hayden Wood – pictured – quit his continuing £250,000 a year post as “consultant” to administrators of his own failed company.
On the retail price cap, the D-BEIS-monitoring MPs express grave concern at latest forecasts that it will increase to £3,244 in October and to £3,363 in January.
“This will have very serious consequences for households across the country, particularly those that are on low incomes, in fuel poverty, and in vulnerable circumstances”, says the report.
“The Government’s May 2022 support package …will now be eclipsed by the scale and longevity of the price increases. We are concerned that public funds are still not being targeted adequately enough to those who need it the most. We urge the Government to provide an immediate and better targeted update to its support package that aligns with the expected scale of price increases”.
Customers on prepayment meters, two million of them requiring manual collection, also worry the MPs. In desperation, record numbers homes are disconnecting their own power.
Ofgem monitors only patchily numbers of self-disconnectors, the MPs find, and is also failing to enforce 18-month old rules requiring suppliers to do so. The committee orders it to improve, and to publish analysis on how this winter’s raising of the retail price cap will increase numbers of homes disconnecting themselves from supply.
Energy efficiency botched twice in a decade
On smart meters, the MPs recommend that the D-BEIS makes it mandatory for all prepayment households to have a smart meter installed urgently, irrespective of supplier, “so that it is easier to identify when customers are struggling to maintain supply and provide emergency credit”.
Mass insulation of Britain’s notoriously leaky homes, botched twice by Conservative governments since 2014, remains a priority for the committee.
“Urgent, far-reaching, and long-term measures” should be undertake to replace the Green Homes Grant, they say. Only these will guarantee will confidence of enduring demand to the energy efficiency industry’s suppliers, ending Whitehall’s stop-start policy approach in this area once and for all.
“We urge the Government not to divert funds from other energy efficiency schemes to pay for this”, say the MPs.
For Ofgem, a short statement this morning welcomed the committee’s report, and admitted its monitoring had not been robust enough.
“No regulator can, or should, guarantee companies will not fail in a competitive market but we are working hard to reform the entire market, as well as closely scrutinising and holding individual energy suppliers to account, to further strengthen the regulatory regime”.
For Citizens Advice, enduring among Ofgem’s fiercest critics, head of energy policy Gillian Cooper, reacted:
“Today’s report underlines what we already know: customers are picking up the tab for chaos in the energy market”.
“Citizens Advice repeatedly sounded the alarm on Ofgem’s failures which contributed to this mess, and we’re glad to see they’ve beefed up their rules in response.
“With huge hikes to bills expected this autumn, the government needs to be ready to act again. It must also overhaul the process for managing supplier failures so families are better protected in the future”, said Cooper.