Ofgem’s ‘negligence’ has led to collapsed energy firm bosses walking away with millions of pounds, MPs warn
A “systemic failure” in how the energy sector is regulated has led to soaring energy prices and the “unacceptable” behaviour of many providers without facing any penalties, MPs have warned.
Ofgem’s failure to properly regulate the energy market and the Government’s choice to prioritise “competition over effective market supervision” has contributed to the energy price crisis, according to the members of the Business, Energy and Industrial Strategy Committee.
Members of the committee also warn that despite Ofgem committing to a programme of major reforms, they are “unconvinced” and “sceptical” of the regulator’s ability to discharge its duty in the future.
In a new report published today (26 July), MPs also criticised Ofgem for enabling “inadequately resourced and inexperienced founders” to start firms.
“Ofgem did not enforce the rules that were in place and did not understand the business models of the suppliers it is mandated to supervise,” they wrote.
“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 collapse of 30 suppliers since April 2021 is expected to add £94 onto an average customer’s energy bills, according to recent Bloomberg analysis.
It comes as it emerged that some senior managers at collapsed energy companies could be in line to be paid tens of millions of pounds despite the mismanagement of their companies.
The Committee has asked Ofgem to overhaul the “Supplier of Last Resort” process to pass on the costs of an energy firm’s collapse “more fairly” and to more tightly regulate how energy companies hedge their supplies.
A spokesperson for Ofgem said: “While the unprecedented rise in global gas prices would have resulted in market exits under almost any regulatory system, we have been clear and transparent about the fact that suppliers and Ofgem’s previous financial resilience regime were not robust enough. This contributed to some of the supplier failures since August 2021.
“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.”
The report comes amid warnings that households will need urgent financial support to pay their soaring energy bills this winter, otherwise the economy will “tip towards recession” because of the energy crisis.
The MPs also criticised measures designed to help vulnerable people as “unacceptable”, as low-income households could be moved onto more expensive prepayment meters if they fall behind on their energy bills.
MPs ask for discounted social tariff
The committee has asked the Government to consider replacing the market-wide price cap with a discounted social tariff for vulnerable customers, and a relative tariff – one that caps the difference between a supplier’s cheapest and most expensive rates – for the rest of the market.
MPs have also urged the Government to boost the amount paid through the Energy Bills Support Scheme to match the forecast rise in the energy price cap, which is estimated to rise to £3,244 in October, up from initial forecasts of around £2,800.
They say the scheme was designed around “out of date” figures from earlier in the year and should be updated to pay energy customers more.
Darren Jones, the BEIS Committee chair, said: “It’s an injustice that the poorest households continue to pay higher energy costs because they’re on prepayment meters.
“To prevent millions from dropping into unmanageable debt it’s imperative the support package is updated and implemented before October, when the squeeze will become a full-on throttling of household finances and further tip the economy towards recession.
“This winter is going to be extremely difficult for family finances and it’s therefore critical that public funds are better targeted to those who need it the most.”
Other steps outlined include implementing a national campaign to help insulate people’s homes as a “permanent solution to bringing down bills”, to be implemented as soon as possible.
Matt Copeland, head of policy and public affairs at fuel poverty charity National Energy Action, said that it was “vital” that the Government reformed the energy sector in light of the report.
“It is critical to ensure that pre-payment meter customers do not pay more for their energy and are not punished further as a result of finding their bills already unaffordable,” he added.
“The winner of the leadership contest must ensure that reducing the wasted energy in our homes becomes a much more prominent part of the policy response.
“Improving energy efficiency should be top of their agenda as it will help ease future price spikes now and in the future.”
The BEIS committee heard evidence from energy company chief executives, consumer advocates and energy sector experts since February in a bid to understand what steps can be taken to make the UK’s energy market more secure.