The government will develop a new approach to consumer protection in energy markets to apply from April 2024 onwards, according to its response to the Committee of Public Accounts on the regulation of energy suppliers, published in January 20231. The commitment, set out in the Autumn Statement 2022, covers options including social tariffs and forms part of wider retail market reforms1.
The government states that the objectives of the new approach are to deliver a fair deal for consumers, ensure the energy market is resilient and investable over the long term, and support an efficient and flexible energy system1. It says it is committed to working with consumer groups and industry to consider the best approach, and that Ofgem supports the approach and will work closely with the government on future measures1.
"As set out in the Autumn Statement 2022, the government will develop a new approach to consumer protection in energy markets, which will apply from April 2024 onwards."
The document sets the change against the current price protection arrangements. It states that the Energy Price Guarantee supersedes the price cap as the main consumer price protection until 31 March 2024, with the cap remaining in place as the reference price for delivering the guarantee1. The government agrees with the Committee's recommendation that the Department and Ofgem review the costs and benefits of the price cap from a consumer's perspective, with a target implementation date of April 20241.
The same response records the scale of recent supplier failures. Between July 2021 and July 2022, the lack of financial resilience within many energy suppliers and the rise in wholesale prices led to the failure of 29 energy suppliers1. Ofgem transferred the customers of 28 of these through the supplier of last resort process, while Bulb Energy, with 1.6 million customers, was placed into the special administration regime1. The Committee's conclusion, quoted in the document, states that Ofgem's failure to effectively regulate the energy supplier market has cost households an estimated £2.7 billion, with further costs expected1.
On enforcement, the document states that Ofgem has issued over 60 Orders to suppliers as part of successful action on over 80 supplier cases, with penalty and redress payments of over £37.5 million, out of a broader figure of over £300 million across all regulated parties1. It records that Ofgem had 60 full time equivalent staff in compliance and enforcement as of 30 September 2022, and approved an additional three full time equivalent staff for retail compliance focusing on financial resilience in November 20221. Enforcement action had been initiated against TruEnergy, Foxglove, UK Energy Incubator Hub, Utilita and Scottish Power1.
Why it matters for households
The price cap and the Energy Price Guarantee are the mechanisms that currently set what a household on a default tariff pays, so a change to the consumer protection framework from April 2024 bears directly on how default prices are set and what protection exists when wholesale costs move. The document does not set out what a social tariff would look like, who would be eligible, or how it would be funded; those details have not been reported1. The review of the price cap's costs and benefits, with a target date of April 2024, is the point at which the future of the current controls is due to be considered1.
The supplier failure figures also bear on household exposure. The mutualisation of costs from the large volume of supplier of last resort transfers means costs arising from failures are spread across consumers, as the document notes1. Ofgem's financial resilience measures, including capital adequacy requirements and new powers to direct ringfencing of credit balances, are aimed at limiting the risk of high mutualised costs falling to customers1.
What happens next
The document gives a target implementation date of April 2024 for the review of the price cap's costs and benefits1. The new approach to consumer protection is stated to apply from April 2024 onwards1. The Energy Price Guarantee is stated to be the main consumer price protection until 31 March 20241. Ofgem committed to write to the Committee within six months on how it will monitor and balance competition and resilience in the supplier market, with a target implementation date of May 20231.