Source · Select Committees · Public Accounts Committee
Recommendation 10
10
Accepted
Following the supplier failures that occurred in 2021, Ofgem implemented further measures to strengthen the...
Conclusion
Following the supplier failures that occurred in 2021, Ofgem implemented further measures to strengthen the financial resilience of the market. In December 2021 Ofgem published an action plan on financial resilience that set out how Ofgem would improve its collection and reporting of information on suppliers, and also introduced stress tests to assess how robust suppliers would be to shocks.15 Subsequently, in April 2022 Ofgem published proposals to ring-fence customer credit balances and Renewables Obligations payments (which are made by suppliers that do not source a sufficient proportion of their energy from renewable sources), to reduce the scope for suppliers to operate with unsustainable business models and lower the cost consumers would have to pay if a supplier fails.16 11 C&AG’s Report, para 1.10 12 Qq 22–23, 25 13 Q 23; C&AG’s Report, para 3.7 and 3.9 14 Qq 23, 27, 75 15 C&AG’s Report, para 3.11; Ofgem, Action plan on retail financial resilience, 15 December 2021 16 C&AG’s Report, para 3.13; Ofgem, Renewables Obligation (RO) | Ofgem and Ofgem, Update to December Action Plan: Customer Credit Balances and Renewables Obligation protection, 14 April 2022 Regulation of energy suppliers 11
Government Response Summary
Ofgem has already introduced changes to improve market stability, including changes to license conditions, an enhanced assessment process for supply licence applications, introduction of the Financial Resilience Action Plan, and new requirements on asset ownership.
Government Response
Accepted
HM Government
Accepted
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.