Twenty-Fifth Report - Regulation of energy suppliers

Select Committee

Public Accounts Committee HC 41 13 November 2022

Report Status Government responded

Conclusions & Recommendations 25 items (9 recs)

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Government Response (AI assessment · 24 of 25 classified)

Accepted 8

Acknowledged 11

Deferred 5

Government response

Treasury minutes: Government response to the Committee of Public Accounts on the Twenty fifth report from Session 2022-23 · published 24 Feb 2023

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Recommendations & Conclusions

5 results

8 Conclusion Deferred

In the decade after it was opened to competition, the UK energy supplier market consisted...

Conclusion

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 Summary

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.

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17 Recommendation Deferred

Ofgem told us that, in its view, the price cap had been a huge benefit...

Recommendation

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 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 rising energy prices, it had “mitigated them somewhat”. It explained that the price cap had prevented suppliers from immediately being able to put up their prices in response to the increases in wholesale prices, which meant price rises were staggered, helping customers to manage them.38 It also explained that, more broadly, the price cap limited suppliers’ profit margin to 2%, whereas in 2015–16 some suppliers were charging margins of up to 8%.39 However, between the price cap’s introduction in 2019 and April 2022, a typical customer’s bill nonetheless increased by 78%, from £1,105 per year to £1,971. The subsequent 80% increase in the price cap to £3,549 in October will mean it 33 Q 59; C&AG’s Report, para 1.6 and 2.6, Figure 3 34 C&AG’s Report, para 1.7 35 Qq 21, 88 36 Q 56; C&AG’s Report, para 2.14 37 Ofgem, Ofgem updates price cap level and tightens up rules on suppliers, Press release, 26 August 2022 38 Qq 21, 55 39 Q 59 14 Regulation of energy suppliers will have increased 221% between 2019 and October 2022.40 We asked the Department whether it had considered introducing a cap on the amount that customers pay on their overall bills rather than the profits that suppliers could make. The Department told us that this would create a crisis elsewhere in the energy system, and that it would require an “almost complete reinvention of the way our energy market works”.41 Ofgem told us that it had to reflect costs in the setting of the price cap, but that the Government had put in place a series of measures, such as the Energy Bill Support Scheme, as a way of mitigating those rises as best it could. We also asked the Department if anything more could be done to support businesses that are not protected by the price cap and find they cannot afford their energy bills. The Department Show less

Government Response Summary

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

Ofgem told us that the price cap had not been sufficiently adaptable to the “once...

Recommendation

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 Summary

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23 Conclusion Deferred

The UK government aims to reduce greenhouse gas emissions to achieve net zero emissions by...

Conclusion

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

Government Response Summary

The government agrees with the general aims and commits to 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, and notes Ofgem's existing consumer interest framework.

HM Treasury

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25 Conclusion Deferred

In July 2021, the Department published its Energy Retail Market Strategy for the 2020s, which...

Conclusion

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 Summary

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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