Source · Select Committees · Public Accounts Committee
Recommendation 8
8
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 numbers.11 Ofgem told us that a small number of energy suppliers took advantage of customer loyalty to generate profits of up to 8%, equivalent to nearly £250 on top of the cost of energy. In 2016 it had therefore decided to prioritise opening up the energy market to new suppliers, in order to increase competition. We noted that there was a consensus between Ofgem and the Department about the need to increase competition in the market, but questioned the Department as to whether it should have foreseen the consequences. The Department told us that there was ultimately a trade-off between maximising levels of competition, and ensuring maximal resilience, and that managing the trade-off for the benefit of customers was the role of Ofgem. It also told us that, while hindsight suggested that the balance between competition and resilience should have been set in a different place, in its view the decision to create competition in the market was right.12
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.
Government Response
Deferred
HM Government
Deferred
2.2 Ofgem commits to write to the Committee within six months. Ofgem is looking to put in place new policies to create a more stable market. This includes proposals for an industry- wide minimum requirement for capital reserves, and other measures to try to minimise the number of supplier failures in future. 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. 2.3 Given the recent increase in energy prices and volatility, it is important that Ofgem considers whether the current earnings before interest and tax allowance continues to be appropriate for customers. It is in customers’ interests that the allowed return strikes a balance between near-term price protection and encouraging investment in the sector, which benefits customers in the longer term. 2.4 Ofgem’s financial responsibility reforms are designed to ensure suppliers are prepared for growth and to meet their regulatory obligations, to increase accountability and incentivise responsible and appropriate behaviour from those in senior positions, and to strengthen Ofgem’s effective oversight of the market to ensure Ofgem can identify potential risks to consumers or competition and take timely action where appropriate.