Source · Select Committees · Public Accounts Committee
Recommendation 3
3
Accepted
We are not convinced that Ofgem yet has the skills and capacity it needs to...
Recommendation
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 for more resources to carry out its functions. This is partly because Ofgem is beginning to administer the Department’s boiler upgrade scheme and is also taking on responsibility for regulation of the carbon capture and storage and nuclear sectors. In response to the 6 Regulation of energy suppliers energy supplier crisis, Ofgem also plans to change its approach to regulating the retail energy market to make it more like the regulation of financial banks. Moving from a reactive model, where Ofgem works mainly with firms determined as being at risk, to a model where all firms operating in the market are assessed and tested, is a very big shift which will require different skills and resources. Ofgem believes it may also need more powers to carry out this role effectively. Some stakeholders note that Ofgem already has extensive powers but does not always use them. For example, Ofgem has not ensured that all suppliers have a customer supply continuity plan in place, setting out how energy supplies for their customers will be managed if the company fails. Recommendation: Ofgem should write to the Committee as part of its Treasury Minute response setting out how much it has increased its capacity to regulate the energy supplier market and what additional activities it is undertaking as a result. As part of this, Ofgem should also set out which suppliers have customer continuity plans in place and its assessment of the quality of these.
Government Response Summary
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.
Government Response
Accepted
HM Government
Accepted
The government agrees with the Committee’s recommendation. November 2022 approved an additional three full time equivalent staff for Retail Compliance focusing on financial resilience. However, retail compliance is one of several priorities including the price control work, the drive to net zero and policy work following the retail failures. In addition, a proportion of the budget comes from BEIS and is funding for specific activity that cannot be diverted to other areas. Over the last three years, Ofgem’s compliance and enforcement teams have broadened their approach to tackle emerging issues as quickly as possible and better manage licensee behaviour, including through a greater use of alternative action and Orders. In this time Ofgem has issued over 60 Orders to suppliers as part of successful action on over 80 supplier cases with penalty/redress payments of over £37.5 million, out of a broader figure of over £300 million across all regulated parties. During 2022, Ofgem engaged suppliers in areas including financial resilience, stress testing, asset control and launched a series of market compliance reviews. These activities, and associated compliance engagements, are ongoing but have already initiated enforcement action against TruEnergy, Foxglove, UK Energy Incubator Hub, Utilita and Scottish Power. Ofgem has consulted on, and implemented, several changes to further protect consumers including modifications to licence conditions for new entrants and where suppliers reach certain milestones, updates to the financial responsibility and operational capacity principles, and additional measures for reducing potential supplier failure and better protecting consumers money. Ofgem has continued to strengthen its compliance and enforcement capacity with 60 Full Time Equivalent staff in position as of 30 September 2022. In terms of customer continuity plans, since June 2022 Ofgem has created a financial resilience compliance team with recruitment underway. This team has compliance, enforcement, energy and financial skill sets and are currently undertaking reviews of ‘fit and proper’, ‘asset control’ and ‘financial resilience’ resulting from financial stress testing scenario monitoring. They liaise closely with Ofgem enforcement and financial monitoring teams to ensure escalated compliance and enforcement activity occurs as and when necessary. On supplier business continuity plans (BCPs), Ofgem has already requested information related to all domestic supplier BCPs as part of a current market compliance review into customer service and complaints arrangements (due to be published early in the new year). These are currently being assessed for quality and suitability and Ofgem is planning to put in place improvement action plans where the review identifies any areas of concern. Ofgem will keep the Committee apprised of the results of this review.