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Ofgem boss admits he should have acted sooner to prevent supplier collapses that cost households £2.5bn

Ed Miliband says ministers’ failure to act means ‘working people are paying higher bills’

Ben Chapman
Tuesday 08 February 2022 20:43 GMT
Financial regulation ‘needs to be tougher’, Ofgem’s boss told MPs on the Business, Energy and Industrial Strategy Committee
Financial regulation ‘needs to be tougher’, Ofgem’s boss told MPs on the Business, Energy and Industrial Strategy Committee (Ofgem/PA)

Britain’s energy regulator has admitted it should have acted sooner to prevent supplier collapses that have hammered households with a £2.5bn bill in the midst of a cost-of-living crisis.

Jonathan Brearley, the chief executive of Ofgem, said financial regulation on suppliers “needs to be tougher” and “needs to change”.

“We need a retail sector that’s more resilient and more able to deal with financial shocks,” he told MPs on the Business, Energy and Industrial Strategy Committee.

“To be clear ... we accept that, had we done that sooner, this would have been better for customers.”

Ed Miliband, Labour’s shadow climate change secretary, blamed the government for failing to get a grip on the looming crisis.

“Ministers failed to make sure the regulator had proper oversight of new companies coming into the market, and allowed them to ignore repeated warnings while loosening licence conditions,” he told The Independent.

“The cost of this failure is clear: working people are paying higher bills.”

His comments came after 29 suppliers collapsed in recent months, with £2.5bn in costs being passed on to households through rising bills. Around £200m of the total related to customer credit balances that were lost when suppliers failed. Much of the remainder is for the purchase of replacement energy at current high wholesale prices.

In total, the additional costs mean that each household will pay an extra £85, on top of last week’s announcement that the Ofgem price cap will jump by 54 per cent in April to £1,971 for an average household.

A damning report published last month by Citizens Advice laid out a litany of failures by the regulator over the past decade, such as leaving suppliers free to build up large customer credit balances that were used to fund day-to-day operations, and allowing them to offer deals that were too cheap to cover their costs.

The principal policy manager at Citizens Advice, Alex Belsham-Harris, said on Tuesday that Mr Brearley had repeatedly claimed that the problems were only clear in hindsight, when many groups had been highlighting them at the time.

Ofgem “missed multiple opportunities to make regulation tougher – and if they’d done so, fewer suppliers may have failed, at lower cost to customers”, Mr Belsham-Harris said. “Ofgem’s approach to enforcing rules wasn’t covered [during the committee session], but was key to letting risky suppliers operate with very poor service.”

Reforming how these powers are used is “vital”, he added.

The government has set aside a further £1.7bn of taxpayer money for the failure of Bulb, which became the first supplier to be placed into special administration. It is not yet clear how much money administrators will be able to recover from selling all or part of Bulb.

Mr Brearley said the government’s priority had previously been to approve new suppliers and challenge the dominance of the “big six” providers.

He conceded: “It would have been better to have higher barriers to entry for new suppliers.”

Ofgem recently unveiled proposals for new rules requiring energy suppliers to hold more capital as a buffer against volatile wholesale prices.

While all suppliers have been hit by unprecedented spikes in global gas prices, some were left more vulnerable after failing to put in place adequate measures to hedge their exposure. More than 4 million customers have been moved to new suppliers after their previous provider ceased trading.

Mr Brearley defended the energy price cap, saying it had “protected customers across winter”, adding: “If you look back over its history, it has made sure customers are paying no more than they need to for their energy.

“But without doubt it’s going to have to become more flexible, and more adaptable, now that we are in what’s quite possibly a more volatile energy market,” he said.

Fears have mounted that prices could spike further if Vladimir Putin continues to mass troops on the border with Ukraine. Russia is Europe’s largest supplier of gas, and could cause major disruption to markets if it chose to reduce the flow through its pipelines.

Caroline Abrahams, charity director at Age UK, said it was crucial that the government provides the help people need to get them through the current crisis.

“With energy bills set to rise sharply in April, placing older people under even more financial strain, it’s imperative that prices don’t rise any further than already set out by the regulator in its recent price cap announcement,” Ms Abrahams said.

“Everyone needs certainty of what future prices might look like, and while we might see some respite over the warmer summer months, many older people will already be looking at next winter with trepidation, worried at what’s around the corner.”

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