Source · Select Committees · Public Accounts Committee
Recommendation 7
7
Accepted
We asked Ofgem how it ensured the needs of customers were considered in the event...
Conclusion
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 customers’ credit balances were protected; and ensuring disruption to customers was minimised. It noted that the SOLR process had not been designed to run for 29 companies in such a short space of but that it had held up really well. It also said that, “by and large” customers kept their supply and their credit balances were transferred, but recognised that there was more work to be done to ensure that customers who were in debt to failed suppliers were treated fairly and reasonably.9 It explained that it was considering other factors which might reduce the costs to customers in the event of future failures, but that these could require legislative change. We questioned Ofgem about the likelihood of future supplier failures. Ofgem told us that it did not think that it would be right for it to speculate on this, but noted that the energy market was still facing a period of high and volatile prices, and the risk was high. It explained that, of the 26 suppliers still left in the market, it was “quite possible” that there would be further exits.10 5 Q 27; C&AG’s Report, para 13 6 Qq 45–46; C&AG’s Report, para 2.8, Figure 8 7 C&AG’s Report, para 2.15 8 C&AG’s Report, para 11 9 Q 37, 40, 44 10 Qq 33, 72, 78–79 10 Regulation of energy suppliers Balancing competition and supplier resilience
Government Response Summary
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.
Government Response
Accepted
HM Government
Accepted
1.2 The Office of Gas and Electricity Markets (Ofgem) and the Department for Business, 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. 1.3 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). 1.4 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. 1.5 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. 1.6 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.