“Ofgem has proved incompetent as the regulatory authority of the energy retail market over the last decade,” the BEIS Select Committee says in its report on Energy Pricing and the Future of the Energy Market. Ofgem “did not understand the business models of the suppliers it is mandated to supervise” and where there were rules they were not enforced. “Witnesses from across the energy sector agreed that Ofgem had failed to deliver on its duties and is responsible for a significant and structural failure of supervising an essential market.”
For its part, government “prioritised competition over effective market regulation and overlooked Ofgem’s lack of supervision”. The MPs said that “The scale of failure and the cost exposure to taxpayers is only comparable to the financial crash of 2008″.
The MPs said they feared that new measures proposed, “risk further destabilising the market and distorting competition” if they are poorly designed and executed. This year’s Energy Bill has provisions to extend the energy price cap beyond 2023, but “Ofgem’s design of the energy price cap also contributed to market instability and resulted in suppliers subsiding customers” and neither the government nor Ofgem evaluated its costs and benefits or considered alternative forms of price protection, before extending it. Instead the government should consider other options including a social tariff for the most vulnerable customers.
Noting that the price cap would probably be £3244 for the coming winter the Committee called for immediate action targeted at customers who are on low incomes, fuel poor, and in vulnerable circumstances, and develop a scheme to help vulnerable customers repay energy debt. It should consider moving legacy policy costs to taxation, and assess whether standing charges are appropriate for prepayment customers.
Ofgem should work with suppliers to identify vulnerable prepayment customers at risk of self-disconnection and offer to convert them to credit mode.
Ultimately, the committee said the UK needs to reduce its dependence on imported gas. “Energy efficiency is the quickest and most cost-effective way to reduce gas demand and lower energy bills. The absence of a home insulation programme is an unacceptable gap in policy that must be rectified.”
The committee said Ofgem must to reform its governance and upskill its workforce, while government should produce its long-delayed Strategy and Policy Statement for the regulator.
Read the full report here