Source · Select Committees · Public Accounts Committee
Recommendation 1
1
Acknowledged
On the basis of a report by the Comptroller and Auditor General, in July 2022...
Conclusion
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 regulation of energy suppliers.1 This report is based on evidence collected up to July 2022 and does not take into account September’s announcements of an Energy Price Guarantee to support UK households, or the Energy Bill Relief Scheme to support UK businesses.2 Our snapshot assessment of Ofgem’s regulatory approach and capability still applies, however.
Government Response Summary
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.
Government Response
Acknowledged
HM Government
Acknowledged
The government agrees with the Committee’s recommendation. Energy and Industrial Strategy (BEIS or the department) continue to work closely to ensure consumers are protected in the event of energy supplier failures. The Supplier of Last Result (SoLR) mechanism and the Special Administration Regime (SAR) have successfully ensured continuity of supply, protected customer balances and limited disruption for consumers. The large volume of SoLRs undertaken since August 2021 has, however, resulted in the mutualisation of significant costs for consumers. As part of ongoing work to improve market stability and limit the risk of high mutualised costs falling to customers, Ofgem has already introduced a number of changes, including: • changes to licence conditions to improve supplier risk management via the Supplier Licensing Review (took effect 22 January 2021); • an enhanced assessment process for supply licence applications (last updated December 2021); • introduction of the Financial Resilience Action Plan (published 15 December 2021), to increase monitoring of suppliers’ financial resilience, including via supplier stress testing; and • new requirements on asset ownership to address issues around suppliers’ control of their assets in the event of insolvency (guidance updated 23 May 2022). On 25 November 2022, Ofgem put forward statutory consultations on further changes intended to strengthen the financial resilience of suppliers, including: • new capital adequacy requirements; • ringfencing of Renewables Obligation (RO) balances; and • new Ofgem powers to direct ringfencing of credit balances. Ofgem now require potential SoLRs to provide their forecasted timeline for transferring the failing suppliers’ meter points, following the Switching Programme launch in July 2022. This change aims to improve consumer experiences of the SoLR transfer. Ofgem and the department will continue to review the impact of these measures to ensure that the tools used to protect customers are proportionate and effective.