Regulation of energy suppliers

Public Accounts Committee Closed Inquiry
Opened: 9 Jun 2022 Closed: 24 Feb 2023 Parliament page
Since the summer of 2021 around 30 gas and electricity suppliers have exited the market in the ongoing energy supply and price crisis, affecting around four million customers. Most customers have been transferred to alternative suppliers through the Supplier of Last Resort process managed by Ofgem, the regulator for the … Read more
9 Recommendations
16 Conclusions
1 Report
1 Oral session
1 Event
Activity timeline 4 events
24 Feb
2023
Report published
13 Nov
2022
Report published
11 Jul
2022
Oral evidence
11 Jul
2022
Formal meeting (oral evidence session) · The Grimond Room, Portcullis House
Oral evidence sessions 1 session
11 Jul 2022
View on parliament.uk
Regulation of energy suppliers
Joanna Whittington · Department for Business, Energy and Industrial Strategy Jonathan Brearley · Ofgem Jonathan Brearley · Department for Energy Security and Net Zero Neil Lawrence · Ofgem Sarah Munby · Department for Business, Energy and Industrial Strategy
Title HC No. Published Items Response
Twenty-Fifth Report - Regulation of energy suppliers HC 41 13 Nov 2022 25 Responded
Recommendations & Conclusions
25 results
2 Recommendation Accepted
Twenty-Fifth Report - Regulation o…
Ofgem did not strike the right balance between promoting competition in the energy suppliers market...
Ofgem did not strike the right balance between promoting competition in the energy suppliers market and ensuring energy suppliers were financially resilient. During the 2010s, Ofgem focused on attracting new firms to the sector to increase competition and reduce costs … Read more
Government Response
The government agrees and states that Ofgem is developing new policies to create a more stable market, including proposals for an industry- wide minimum requirement for capital reserves. Ofgem is not proceeding with earlier proposals to ringfence customers’ credit balances but is instead consulting on new powers to direct ringfencing of credit balances, if needed.
HM Treasury
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3 Recommendation Accepted
Twenty-Fifth Report - Regulation o…
We are not convinced that Ofgem yet has the skills and capacity it needs to...
We are not convinced that Ofgem yet has the skills and capacity it needs to take a more proactive role in regulating the energy supplier market. Ofgem has around 1,400 staff and has submitted a bid to HM Treasury asking … Read more
Government Response
The government agrees and describes increasing Ofgem's retail compliance staff, though it notes budgetary limitations. It highlights Ofgem's enforcement actions and the creation of a financial resilience compliance team. It also mentions a current market compliance review into supplier BCPs, with planned improvement action plans.
HM Treasury
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4 Recommendation Acknowledged
Twenty-Fifth Report - Regulation o…
The price cap is providing only very limited protection to households from increases in the...
The price cap is providing only very limited protection to households from increases in the wholesale price of energy. The price cap limits the rates suppliers can charge customers for the standing charge and for each unit of electricity and … Read more
Government Response
The government agrees and states that the price cap reflects the real cost of supplying energy. It notes that the Energy Price Guarantee (EPG) supersedes the cap as the main consumer price protection until March 2024, and it is developing a new approach to consumer protection in energy markets from April 2024 onwards.
HM Treasury
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5 Recommendation Accepted
Twenty-Fifth Report - Regulation o…
It is unacceptable that many vulnerable customers, on top of having to pay higher energy...
It is unacceptable that many vulnerable customers, on top of having to pay higher energy prices, face extra challenges working with energy suppliers and accessing benefits designed to help people with their energy bills. Vulnerable customers are most exposed to … Read more
Government Response
The government agrees and outlines existing schemes like the Energy Bills Support Scheme (EBSS) and the Energy Price Guarantee (EPG) to support vulnerable households. It also details efforts to ensure those with traditional prepayment meters receive vouchers, and alternative funding for those not eligible for EBSS.
HM Treasury
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6 Recommendation Accepted
Twenty-Fifth Report - Regulation o…
We are concerned that the Department and Ofgem do not yet have a clear vision...
We are concerned that the Department and Ofgem do not yet have a clear vision of how the energy retail market will work in the best interests of customers during the transition to net zero. The UK is seeking to … Read more
Government Response
The government will work with consumer groups and industry from April 2024 to consider the best approach to consumer protection, including different forms of targeted discounts, as part of wider retail market reforms. Ofgem has developed a consumer interest framework (CIF) which is currently undergoing user research.
HM Treasury
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1 Conclusion Acknowledged
Twenty-Fifth Report - Regulation o…
On the basis of a report by the Comptroller and Auditor General, in July 2022...
On the basis of a report by the Comptroller and Auditor General, in July 2022 we took evidence from the Department for Business, Energy & Industrial Strategy (the Department) and the Office of Gas and Electricity Markets (Ofgem) on the … Read more
Government Response
The government agrees with the Committee’s recommendation and details ongoing work to improve market stability and limit the risk of high mutualised costs falling to customers, including changes to licence conditions and enhanced assessment process for supply licence applications.
HM Treasury
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7 Conclusion Accepted
Twenty-Fifth Report - Regulation o…
We asked Ofgem how it ensured the needs of customers were considered in the event...
We asked Ofgem how it ensured the needs of customers were considered in the event of an energy supplier failing. Ofgem told us that the SOLR and SAR processes had three main priorities: ensuring everyone was kept on supply; ensuring … Read more
Government Response
Ofgem and BEIS continue to work closely to ensure consumers are protected in the event of energy supplier failures through the SoLR and SAR processes, and have already introduced changes to licence conditions, assessment processes, and monitoring of financial resilience.
HM Treasury
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8 Conclusion Deferred
Twenty-Fifth Report - Regulation o…
In the decade after it was opened to competition, the UK energy supplier market consisted...
In the decade after it was opened to competition, the UK energy supplier market consisted of six large energy companies and a similar number of smaller suppliers. Since 2010, smaller companies have entered the domestic energy supplier market in greater … Read more
Government Response
Ofgem is looking to put in place new policies to create a more stable market and will write to the Committee within six months, including proposals for an industry-wide minimum requirement for capital reserves, and other measures to try to minimise the number of supplier failures in future.
HM Treasury
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9 Conclusion Acknowledged
Twenty-Fifth Report - Regulation o…
Ofgem told us that issues began to emerge with the financial resilience of new entrants...
Ofgem told us that issues began to emerge with the financial resilience of new entrants in 2018 and in response it decided first to stop firms who did not have a resilient business model from entering the market, and then … Read more
Government Response
The government acknowledges the need for resources at Ofgem, noting an additional three staff for retail compliance. However, they indicate resource allocation is complex, with some funding earmarked for specific activities.
HM Treasury
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10 Conclusion Accepted
Twenty-Fifth Report - Regulation o…
Following the supplier failures that occurred in 2021, Ofgem implemented further measures to strengthen the...
Following the supplier failures that occurred in 2021, Ofgem implemented further measures to strengthen the financial resilience of the market. In December 2021 Ofgem published an action plan on financial resilience that set out how Ofgem would improve its collection … Read more
Government Response
Ofgem has already introduced changes to improve market stability, including changes to license conditions, an enhanced assessment process for supply licence applications, introduction of the Financial Resilience Action Plan, and new requirements on asset ownership.
HM Treasury
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11 Conclusion Acknowledged
Twenty-Fifth Report - Regulation o…
Ofgem’s proposals have drawn a range of reactions from stakeholders across the sector.17 We received...
Ofgem’s proposals have drawn a range of reactions from stakeholders across the sector.17 We received written evidence from suppliers who told us that they welcomed aspects of Ofgem’s proposals to improve financial resilience, such as raising capital adequacy requirements and … Read more
Government Response
Ofgem has already introduced a number of changes to improve market stability and limit the risk of high mutualised costs falling to customers, including changes to licence conditions, an enhanced assessment process for supply licence applications, the Financial Resilience Action Plan, and new requirements on asset ownership.
HM Treasury
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12 Recommendation Accepted
Twenty-Fifth Report - Regulation o…
Ofgem told us that in order to undertake the functions being asked of it and...
Ofgem told us that in order to undertake the functions being asked of it and to “play the role we want to play” in the sector, it would need different resources and different skills in future.22 It explained that its … Read more
Government Response
Ofgem has undertaken a prioritisation exercise to flex resource where possible and in November 2022 approved an additional three full time equivalent staff for Retail Compliance focusing on financial resilience. Target implementation date: January 2023
HM Treasury
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13 Conclusion Acknowledged
Twenty-Fifth Report - Regulation o…
Ofgem’s headcount was approximately 1,400 in July 2022.
Ofgem’s headcount was approximately 1,400 in July 2022. This is higher than the 1,246 total staff Ofgem employed on average through 2021–22, and an increase of around 72% from the 816 total staff it employed during 2017–18.25 It had submitted … Read more
Government Response
The government acknowledges the need for resources at Ofgem, noting an additional three staff for retail compliance. However, they indicate resource allocation is complex, with some funding earmarked for specific activities.
HM Treasury
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14 Conclusion Acknowledged
Twenty-Fifth Report - Regulation o…
We asked Ofgem whether it was able to deliver its plans for regulating energy suppliers...
We asked Ofgem whether it was able to deliver its plans for regulating energy suppliers using its existing legislation. Ofgem told us that it was testing its existing powers to assess whether it needed additional powers. For example, it explained … Read more
Government Response
The government acknowledges the need for resources at Ofgem, noting an additional three staff for retail compliance. However, they indicate resource allocation is complex, with some funding earmarked for specific activities.
HM Treasury
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15 Conclusion Acknowledged
Twenty-Fifth Report - Regulation o…
Energy customers are either on non-default tariffs, where they have made an active choice about...
Energy customers are either on non-default tariffs, where they have made an active choice about their energy tariff, usually fixing it at a certain rate, or on default tariffs, where they are more likely not to have done so. Since … Read more
Government Response
The government will develop a new approach to consumer protection in energy markets, which will apply from April 2024 onwards, including options such as social tariffs, as part of wider retail market reforms.
HM Treasury
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16 Conclusion Acknowledged
Twenty-Fifth Report - Regulation o…
Ofgem sets the price cap every six months by calculating how much it costs an...
Ofgem sets the price cap every six months by calculating how much it costs an efficient supplier to provide gas and/or electricity to a customer.34 Ofgem told us that, when setting the cap, it had to reflect the cost at … Read more
Government Response
The government acknowledges the committee's recommendation regarding the price cap and states that they will develop a new approach to consumer protection in energy markets from April 2024 onwards, including considering options such as social tariffs.
HM Treasury
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17 Recommendation Deferred
Twenty-Fifth Report - Regulation o…
Ofgem told us that, in its view, the price cap had been a huge benefit...
Ofgem told us that, in its view, the price cap had been a huge benefit for customers and had done a lot of good for them over the last six months, and that while the price cap could not stop … Read more
Government Response
The government will develop a new approach to consumer protection in energy markets, which will apply from April 2024 onwards, including options such as social tariffs, as part of wider retail market reforms.
HM Treasury
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18 Recommendation Deferred
Twenty-Fifth Report - Regulation o…
Ofgem told us that the price cap had not been sufficiently adaptable to the “once...
Ofgem told us that the price cap had not been sufficiently adaptable to the “once in a generation change” in wholesale prices during the winter of 2021–2022.43 We asked Ofgem whether it had considered the possibility of high wholesale energy … Read more
Government Response
The government will develop a new approach to consumer protection in energy markets, which will apply from April 2024 onwards, including options such as social tariffs, as part of wider retail market reforms.
HM Treasury
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19 Conclusion Acknowledged
Twenty-Fifth Report - Regulation o…
The NAO found that the vast majority of costs resulting from supplier failures was to...
The NAO found that the vast majority of costs resulting from supplier failures was to make up the difference between what suppliers of last resort (SOLRs) could charge consumers under the cap and the cost of purchasing energy on the … Read more
Government Response
The government acknowledges the committee's recommendation regarding the price cap and states that they will develop a new approach to consumer protection in energy markets from April 2024 onwards, including considering options such as social tariffs.
HM Treasury
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20 Conclusion Acknowledged
Twenty-Fifth Report - Regulation o…
We were concerned that some energy customers have been disproportionately affected by the energy crisis.
We were concerned that some energy customers have been disproportionately affected by the energy crisis. For example, we noted that some vulnerable customers rely on prepayment meters but it costs more to administer the cost of energy paid by prepayment … Read more
Government Response
The government acknowledges that some energy customers have been disproportionately affected by the energy crisis and states it is using all available levers to ensure vulnerable customers benefit, highlighting the EBSS and alternative funding.
HM Treasury
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21 Recommendation Accepted
Twenty-Fifth Report - Regulation o…
We asked Ofgem what it was doing to support vulnerable customers.
We asked Ofgem what it was doing to support vulnerable customers. Some stakeholders criticised Ofgem’s decision to add the SOLR cost levy to the electricity standing charge when customers cannot influence this cost by reducing their energy usage. Ofgem told … Read more
Government Response
The government is using all the levers available to make sure that vulnerable customers benefit from the energy support available, including the Energy Bills Support Scheme (EBSS) and the Energy Price Guarantee (EPG).
HM Treasury
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22 Conclusion Acknowledged
Twenty-Fifth Report - Regulation o…
We also asked the Department how it would ensure that customers still benefited if they...
We also asked the Department how it would ensure that customers still benefited if they were not the direct billpayers, for example those who live in park homes or in rented accommodation where the rent included bills. The Department recognised … Read more
Government Response
The government acknowledges the issue of ensuring all customers benefit from energy support, particularly those not direct billpayers, and states it is using all available levers to ensure vulnerable customers benefit, highlighting the EBSS and alternative funding.
HM Treasury
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23 Conclusion
Twenty-Fifth Report - Regulation o…
The UK government aims to reduce greenhouse gas emissions to achieve net zero emissions by...
The UK government aims to reduce greenhouse gas emissions to achieve net zero emissions by 2050.54 In April 2022, the Government set out its plans to reduce the UK’s vulnerability to international oil and gas prices, and accelerate the UK’s … Read more
HM Treasury
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24 Conclusion
Twenty-Fifth Report - Regulation o…
The wholesale price of electricity is set by the cost of the type of power...
The wholesale price of electricity is set by the cost of the type of power that most recently met the peak demand for energy. This means the wholesale price is often determined by the cost of gas even at times … Read more
HM Treasury
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25 Conclusion Deferred
Twenty-Fifth Report - Regulation o…
In July 2021, the Department published its Energy Retail Market Strategy for the 2020s, which...
In July 2021, the Department published its Energy Retail Market Strategy for the 2020s, which set out its vision for a retail market which enabled net zero. In December 2021 the Department announced it needed to refresh the strategy to … Read more
Government Response
The government will work with consumer groups and industry to consider the best approach to consumer protection in the energy market from April 2024 as part of wider retail market reforms, while Ofgem has developed a consumer interest framework (CIF) as a basis for any future policy development.
HM Treasury
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Government Response AI assessment · 23 of 9 classified
Accepted 8
Acknowledged 11
Deferred 4
Total 9 recs + 16 conclusions