Source · Select Committees · Public Accounts Committee
Recommendation 12
12
Accepted
Ofgem told us that in order to undertake the functions being asked of it and...
Recommendation
Ofgem told us that in order to undertake the functions being asked of it and to “play the role we want to play” in the sector, it would need different resources and different skills in future.22 It explained that its past approach to regulating the energy sector had largely been reactive, in that it had worked mainly with companies identified as being under stress. It told us that it was changing its regulatory approach so it would assess the financial resilience and business management of every company and then respond accordingly.23 Ofgem told us that the decision to change from a reactive model that looked at individual cases to a model similar to that in banking, where all firms are regularly monitored and assessed, was a “very big shift” that would require Ofgem to build its staff, skills and systems. Ofgem had already spent some time working with the Bank of England to identify the changes it needed to make and the skills this would require.24
Government Response Summary
Ofgem has undertaken a prioritisation exercise to flex resource where possible and in November 2022 approved an additional three full time equivalent staff for Retail Compliance focusing on financial resilience. Target implementation date: January 2023
Government Response
Accepted
HM Government
Accepted
3.1 The government agrees with the Committee’s recommendation. Target implementation date: January 2023 3.2 Ofgem has undertaken a prioritisation exercise to flex resource where possible and in November 2022 approved an additional three full time equivalent staff for Retail Compliance focusing on financial resilience. However, retail compliance is one of several priorities including the price control work, the drive to net zero and policy work following the retail failures. In addition, a proportion of the budget comes from BEIS and is funding for specific activity that cannot be diverted to other areas. 3.3 Over the last three years, Ofgem’s compliance and enforcement teams have broadened their approach to tackle emerging issues as quickly as possible and better manage licensee behaviour, including through a greater use of alternative action and Orders. In this time Ofgem has issued over 60 Orders to suppliers as part of successful action on over 80 supplier cases with penalty/redress payments of over £37.5 million, out of a broader figure of over £300 million across all regulated parties. 3.4 During 2022, Ofgem engaged suppliers in areas including financial resilience, stress testing, asset control and launched a series of market compliance reviews. These activities, and associated compliance engagements, are ongoing but have already initiated enforcement action against TruEnergy, Foxglove, UK Energy Incubator Hub, Utilita and Scottish Power. Ofgem has consulted on, and implemented, several changes to further protect consumers including modifications to licence conditions for new entrants and where suppliers reach certain milestones, updates to the financial responsibility and operational capacity principles, and additional measures for reducing potential supplier failure and better protecting consumers money. 3.5 Ofgem has continued to strengthen its compliance and enforcement capacity with 60 Full Time Equivalent staff in position as of 30 September 2022. 3.6 In terms of customer continuity plans, since June 2022 Ofgem has created a financial resilience compliance team with recruitment underway. This team has compliance, enforcement, energy and financial skill sets and are currently undertaking reviews of ‘fit and proper’, ‘asset control’ and ‘financial resilience’ resulting from financial stress testing scenario 13 monitoring. They liaise closely with Ofgem enforcement and financial monitoring teams to ensure escalated compliance and enforcement activity occurs as and when necessary. 3.7 On supplier business continuity plans (BCPs), Ofgem has already requested information related to all domestic supplier BCPs as part of a current market compliance review into customer service and complaints arrangements (due to be published early in the new year). These are currently being assessed for quality and suitability and Ofgem is planning to put in place improvement action plans where the review identifies any areas of concern. Ofgem will keep the Committee apprised of the results of this review.