Source · Select Committees · Public Accounts Committee
Recommendation 14
14
Acknowledged
We asked Ofgem whether it was able to deliver its plans for regulating energy suppliers...
Conclusion
We asked Ofgem whether it was able to deliver its plans for regulating energy suppliers using its existing legislation. Ofgem told us that it was testing its existing powers to assess whether it needed additional powers. For example, it explained that it may need more supervisory powers to allow it to undertake direct checks on companies it believed were not complying with regulations.27 Some stakeholders told us that they agree that Ofgem needed to be provided with the powers necessary to operate the new regime. For example, Centrica, E.ON and Citizens Advice highlighted Ofgem’s lack of authority over administrators brought in to manage insolvent firms.28 Other stakeholders however noted the risks of extending Ofgem’s powers. Octopus Energy in written evidence highlighted the burden suppliers face producing the significant volume of information Ofgem now requires.29 We received written evidence from Energy UK that told us the energy license already had an extensive range of terms and conditions and there is scope for Ofgem to make more use of existing powers, before adding more.30 For example, Citizens Advice told us that Ofgem had not enforced its own requirements that all suppliers develop a customer supply continuity plan that sets out how its customers will be managed in the event of the supplier failing. Citizens Advice explained that only one of the 20 suppliers that failed before November 2021 had such a plan.31 We asked Ofgem how many of the 26 suppliers left in the market had a customer supply continuity plan in place. Ofgem was unable to give us an exact number, but told us that having a plan was not the issue, but the quality of the plan and ensuring that it was able to stand up to scrutiny. It explained that it was therefore carrying out a customer service compliance review to look at the plans in detail.32 26 Q 100 27 Qq 72–73; C&AG’s Report, para 3.20 28 RES 0007, Centrica plc, 11 July 2022; RES 0006, Citizens Advice, 11 July 2022; RES 0005, E.ON 11 J
Government Response Summary
The government acknowledges the need for resources at Ofgem, noting an additional three staff for retail compliance. However, they indicate resource allocation is complex, with some funding earmarked for specific activities.
Government Response
Acknowledged
HM Government
Acknowledged
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.