The Committee of Public Accounts published its report on the regulation of energy suppliers on 13 November 2022, concluding that Ofgem's failure to regulate the sector effectively has come at considerable cost to billpayers1.
Since July 2021, 29 energy suppliers have failed, affecting around 4 million households, according to the report1. Customers have been left to pay the £2.7 billion cost of those failures, which the Committee says equates to £94 per household, at a time when energy prices are already at a record high1. The report states that costs are very likely to increase, including when Bulb Energy, the largest of the failed companies and one being funded by the government, is sold or exits special administration by other means1.
The Committee found that while the Department for Business, Energy & Industrial Strategy and Ofgem had procedures in place to ensure customers did not experience any discontinuation of supply as a result of the failures, many customers, including more vulnerable ones, experienced other forms of disruption1. It notes that the report, based on evidence collected up to July 2022, has in some cases been superseded by events, in particular the announcement of the Energy Price Guarantee for UK households in September 20221. The Committee adds that the supplier market remains unstable because of ongoing volatility in the wholesale energy market, and that its conclusions on Ofgem's resourcing and regulatory approach still apply1.
"It remains the case that Ofgem must urgently learn lessons to protect customers and prevent them from having to foot the bill in the event of any future failures."
The report says Ofgem is bringing in new rules in the short term to improve the financial resilience of the market, but needs to manage complex trade-offs between improving resilience and encouraging innovation and competition1. In the longer term, it says the Department and Ofgem need to ensure the energy market is structured and regulated in a way that supports the transition to net zero1.
Why it matters for households
The £2.7 billion cost of supplier failures has been spread across billpayers rather than borne by the companies that failed, which means the price of a household's energy has carried costs unrelated to the energy it uses1. The report puts that at £94 per household, and states the total is very likely to rise once Bulb Energy is sold or otherwise leaves special administration1. For a household, the practical effect is that the reliability of the company named on the bill, and the rules governing how it is run, feed directly into what that household pays. The report also records that disruption went beyond continuity of supply for many customers, including more vulnerable ones, even where procedures prevented supply from being cut off1. The Committee's finding that the market remains unstable, and that its conclusions on Ofgem's resourcing and regulatory approach still apply, indicates that the arrangements governing supplier licensing and failure are still being tested1. How Ofgem regulates suppliers, and how regulation shapes what is allowed at home, therefore remain live questions for household energy costs.
What happens next
The report is a House of Commons Committee report with recommendations to government, and the Government has two months to respond1. The Committee states that Ofgem is bringing in new rules to improve the financial resilience of the market in the short term1. No date has been reported for the sale of Bulb Energy or its exit from special administration1.
Sources1 cited
- Regulation of energy suppliers - Committee of Public Accounts, publications.parliament.uk