Recommendation 11

Ofgem’s proposals have drawn a range of reactions from stakeholders across the sector.17 We received written evidence from suppliers who told us that they welcomed aspects of Ofgem’s proposals to improve financial resilience, such as raising capital adequacy requirements and ring-fencing customer credit balances.18 Some suppliers told us that there was scope for the reforms to be more ambitious. For example, SSE and E.ON suggested that Renewables Obligation payments should be made more frequently to reduce the costs that would need to be recovered from bill payers via a levy if a supplier fails.19 Some suppliers acknowledged, however, that there was a risk that Ofgem’s reforms could raise costs to consumers. We asked Ofgem about the suggestion from Octopus Energy that ringfencing supplier credit balances could add £15 per year to the bill of every UK customer. Ofgem accepted that asking companies to hold more capital could result in “a pressure on bills” and may increase costs to consumers. It explained that it considered that this was necessary to avoid the cost of supplier failures.20 Ofgem explained that it was developing a framework for assessing how its policies and regulations affect the balance of these trade-offs to allow it to simultaneously increase competition, reward customers for using their energy carefully and encourage innovation.21 Ofgem skills and capacity