Source · Select Committees · Public Accounts Committee
Twenty-Fifth Report - Regulation of energy suppliers
Public Accounts Committee
HC 41
Published 13 November 2022
Recommendations
4
Acknowledged
The price cap is providing only very limited protection to households from increases in the...
Recommendation
The price cap is providing only very limited protection to households from increases in the wholesale price of energy. The price cap limits the rates suppliers can charge customers for the standing charge and for each unit of electricity and …
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Government Response Summary
The government agrees and states that the price cap reflects the real cost of supplying energy. It notes that the Energy Price Guarantee (EPG) supersedes the cap as the main consumer price protection until March 2024, and it is developing a new approach to consumer protection in energy markets from April 2024 onwards.
HM Treasury
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Conclusions (10)
1
Conclusion
Acknowledged
On the basis of a report by the Comptroller and Auditor General, in July 2022 we took evidence from the Department for Business, Energy & Industrial Strategy (the Department) and the Office of Gas and Electricity Markets (Ofgem) on the regulation of energy suppliers.1 This report is based on evidence …
Government Response Summary
The government agrees with the Committee’s recommendation and details ongoing work to improve market stability and limit the risk of high mutualised costs falling to customers, including changes to licence conditions and enhanced assessment process for supply licence applications.
9
Conclusion
Acknowledged
Ofgem told us that issues began to emerge with the financial resilience of new entrants in 2018 and in response it decided first to stop firms who did not have a resilient business model from entering the market, and then determine the ongoing requirements that suppliers already in the market …
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.
11
Conclusion
Acknowledged
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 …
Government Response Summary
Ofgem has already introduced a number of changes to improve market stability and limit the risk of high mutualised costs falling to customers, including changes to licence conditions, an enhanced assessment process for supply licence applications, the Financial Resilience Action Plan, and new requirements on asset ownership.
13
Conclusion
Acknowledged
Ofgem’s headcount was approximately 1,400 in July 2022. This is higher than the 1,246 total staff Ofgem employed on average through 2021–22, and an increase of around 72% from the 816 total staff it employed during 2017–18.25 It had submitted a bid to HM Treasury asking for more resources to …
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.
14
Conclusion
Acknowledged
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 …
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.
15
Conclusion
Acknowledged
Energy customers are either on non-default tariffs, where they have made an active choice about their energy tariff, usually fixing it at a certain rate, or on default tariffs, where they are more likely not to have done so. Since 2019, the government has capped the price per unit of …
Government Response Summary
The government will develop a new approach to consumer protection in energy markets, which will apply from April 2024 onwards, including options such as social tariffs, as part of wider retail market reforms.
16
Conclusion
Acknowledged
Ofgem sets the price cap every six months by calculating how much it costs an efficient supplier to provide gas and/or electricity to a customer.34 Ofgem told us that, when setting the cap, it had to reflect the cost at which suppliers buy the energy in the wholesale market. It …
Government Response Summary
The government acknowledges the committee's recommendation regarding the price cap and states that they will develop a new approach to consumer protection in energy markets from April 2024 onwards, including considering options such as social tariffs.
19
Conclusion
Acknowledged
The NAO found that the vast majority of costs resulting from supplier failures was to make up the difference between what suppliers of last resort (SOLRs) could charge consumers under the cap and the cost of purchasing energy on the wholesale market.45 To address this lack of adaptability, in May …
Government Response Summary
The government acknowledges the committee's recommendation regarding the price cap and states that they will develop a new approach to consumer protection in energy markets from April 2024 onwards, including considering options such as social tariffs.
20
Conclusion
Acknowledged
We were concerned that some energy customers have been disproportionately affected by the energy crisis. For example, we noted that some vulnerable customers rely on prepayment meters but it costs more to administer the cost of energy paid by prepayment than by direct debit, which is reflected in the prices …
Government Response Summary
The government acknowledges that some energy customers have been disproportionately affected by the energy crisis and states it is using all available levers to ensure vulnerable customers benefit, highlighting the EBSS and alternative funding.
22
Conclusion
Acknowledged
We also asked the Department how it would ensure that customers still benefited if they were not the direct billpayers, for example those who live in park homes or in rented accommodation where the rent included bills. The Department recognised that this was an issue that it needed to address, …
Government Response Summary
The government acknowledges the issue of ensuring all customers benefit from energy support, particularly those not direct billpayers, and states it is using all available levers to ensure vulnerable customers benefit, highlighting the EBSS and alternative funding.