Recommendations & Conclusions
20 items
2
Conclusion
Third Report - Energy pricing and the f…
Accepted
The lack of ongoing requirements for suppliers operating in the market allowed thinly capitalised companies to rely on customers’ money to fuel business growth and operate with either no hedging or inadequate hedging against future energy prices. These companies took substantial risks to undercut responsible suppliers. The new rules put …
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The lack of ongoing requirements for suppliers operating in the market allowed thinly capitalised companies to rely on customers’ money to fuel business growth and operate with either no hedging or inadequate hedging against future energy prices. These companies took substantial risks to undercut responsible suppliers. The new rules put in place in early 2021 had no meaningful impact on suppliers’ practices. Ofgem has proved incompetent as the regulatory authority of this complex market, thereby costing taxpayers billions of pounds. The scale of failure and the cost exposure to taxpayers is only comparable to the financial crash of 2008.
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Government response AI summary
Ofgem accepts the recommendations of the Oxera report in full, including the development of consumer interest and competition frameworks, and will seek further views from stakeholders.
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Department for Business and Trade
11
Conclusion
Third Report - Energy pricing and the f…
Accepted
We expect Ofgem, as the independent regulator, to clearly outline to Ministers and Parliament the risks and consequences associated with the delivery of Government objectives. We do not believe that Ofgem properly raised the risks to Government, or Parliament, that a deregulatory approach to promoting competition could severely undermine the …
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We expect Ofgem, as the independent regulator, to clearly outline to Ministers and Parliament the risks and consequences associated with the delivery of Government objectives. We do not believe that Ofgem properly raised the risks to Government, or Parliament, that a deregulatory approach to promoting competition could severely undermine the financial resilience of the energy supplier market.
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Government response AI summary
Ofgem has worked with Government to introduce the Public Interest Business Protection Tax and is committed to working with suppliers and Insolvency Practitioners to ensure current rules and Consumer Protection regulations are adhered to.
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Department for Business and Trade
14
Recommendation
Third Report - Energy pricing and the f…
Accepted
We require Ofgem to start regularly and proactively reporting to the Department on how it is meeting its duties and to inform Ministers of any risks associated with the delivery of Government strategy. We ask the Department and Ofgem to review, update and publish a new Framework Document within six …
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We require Ofgem to start regularly and proactively reporting to the Department on how it is meeting its duties and to inform Ministers of any risks associated with the delivery of Government strategy. We ask the Department and Ofgem to review, update and publish a new Framework Document within six months of the date of this report.
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Government response AI summary
Ofgem launched its supplier stress testing regime earlier in 2022 and is analysing the responses to the second iteration ahead of winter. Ofgem plans to develop an adaptive framework to ensure the right level of resilience, while minimising unnecessary burden and barriers to innovation. build …
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Department for Business and Trade
16
Conclusion
Third Report - Energy pricing and the f…
Accepted
We recognise that this Committee has an important role in the scrutiny of Ofgem’s activity. We expect the regulator to be carrying out its core functions and delivering on its duties. It is neither feasible nor appropriate for Parliament to scrutinise, in real time, all aspects of Ofgem’s decision-making. However, …
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We recognise that this Committee has an important role in the scrutiny of Ofgem’s activity. We expect the regulator to be carrying out its core functions and delivering on its duties. It is neither feasible nor appropriate for Parliament to scrutinise, in real time, all aspects of Ofgem’s decision-making. However, in light of its extensive failures, we commit to undertaking closer scrutiny of Ofgem. We require Ofgem, to share key decisions, performance issues, and relevant policy concerns with this Committee. This should be in addition to writing to us with its Annual Report and Accounts and making both the Chairman and the Chief Executive Officer available for public scrutiny via this Committee. (Paragraph 67) Supplier Exit Arrangements
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Government response AI summary
The government describes the 2021 consultation between Ofgem and BEIS on supplier payment default under the Renewables Obligation, and indicates that Ofgem published a consultation in June this year which included measures to protect money collected to meet Renewables Obligation payments.
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Department for Business and Trade
26
Conclusion
Third Report - Energy pricing and the f…
Accepted
Our first priority is to ensure that customer credit balances are protected, so that in the event of a supplier failure, customers are always able to recover the credit 78 Energy pricing and the future of the energy market they have built up. Our second priority is to ensure that …
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Our first priority is to ensure that customer credit balances are protected, so that in the event of a supplier failure, customers are always able to recover the credit 78 Energy pricing and the future of the energy market they have built up. Our second priority is to ensure that any policies put in place to secure this also prevent an increase in energy bills. We agree that some energy suppliers have taken high risk decisions on the basis that they were spending their customers money and not their own. Any new regulation on the holding of customer credit balances must carefully balance these two priorities whilst not distorting competition between retailers.
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Government response AI summary
Ofgem has announced four Market Compliance Reviews to drive improvement across the market.
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Department for Business and Trade
27
Recommendation
Third Report - Energy pricing and the f…
Accepted
Ofgem must publish a more robust impact analysis of its proposals for energy suppliers to ringfence customer credit balances. We expect the impact analysis to be based on evidence received from suppliers following an information request so that it is underpinned by facts, rather than assumptions. The analysis should include …
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Ofgem must publish a more robust impact analysis of its proposals for energy suppliers to ringfence customer credit balances. We expect the impact analysis to be based on evidence received from suppliers following an information request so that it is underpinned by facts, rather than assumptions. The analysis should include comparisons of Ofgem’s preferred option with alterative options. It should be transparent and explicit about the implications of the proposal on energy bills and competition in the market, as well as the cumulative impact of this proposal and the other measures Ofgem is taking to boost resilience in the market. This analysis should be shared with this Committee with enough time for scrutiny before a final decision is taken by Ofgem and include an explanation of how Ofgem has balanced our priorities as set out above.
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Government response AI summary
Ofgem already publishes data on customer debt on a quarterly basis, arising from analysis of data gathered under Social Obligations Reporting.
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Department for Business and Trade
31
Conclusion
Third Report - Energy pricing and the f…
Accepted
We welcome more frequent calculations of the price cap if this stabilises the supplier market amid current market conditions. However, Ofgem’s cost benefit analysis of its proposed move to quarterly price cap updates did not consider the impact that further price rises in January 2023 could have on vulnerable customers, …
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We welcome more frequent calculations of the price cap if this stabilises the supplier market amid current market conditions. However, Ofgem’s cost benefit analysis of its proposed move to quarterly price cap updates did not consider the impact that further price rises in January 2023 could have on vulnerable customers, including an increased risk of self-disconnections.
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Government response AI summary
The government states that the introduction of the Energy Price Guarantee means there is no longer a risk of prices increasing for consumers in January and Ofgem is reviewing its approach in light of the Energy Price Guarantee and will update the Committee in due …
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Department for Business and Trade
33
Conclusion
Third Report - Energy pricing and the f…
Accepted
The Energy Bill [HL], which was introduced to Parliament on 6 July 2022, included provisions to extend the energy price beyond 2023, but it will not change how the price cap functions. Neither the Government nor Ofgem has undertaken an evaluation of Energy pricing and the future of the energy …
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The Energy Bill [HL], which was introduced to Parliament on 6 July 2022, included provisions to extend the energy price beyond 2023, but it will not change how the price cap functions. Neither the Government nor Ofgem has undertaken an evaluation of Energy pricing and the future of the energy market 79 its costs and benefits, nor considered alternative forms of price protection, including a social tariff which could provide deeper price protection for vulnerable, fuel poor and low income households.
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Government response AI summary
The government is introducing the Energy Price Guarantee to protect households from the spiralling costs of energy and will consider how price protection needs to evolve as the energy system changes.
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Department for Business and Trade
34
Recommendation
Third Report - Energy pricing and the f…
Accepted
We ask Ofgem to undertake an immediate review of the costs and benefits of the energy price cap to inform decisions about its operation and alternative forms of price protection.
Government response AI summary
Ofgem carries out detailed reviews of the costs and benefits to consumers for every decision made with regard to the price cap, such as those published in early August 2022. There will be an opportunity for a wider review of all elements of the the …
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Department for Business and Trade
35
Recommendation
Third Report - Energy pricing and the f…
Accepted
We call on the Government to consider the introduction of a social tariff for the most vulnerable customers and a relative tariff for the rest of the market, to be introduced once wholesale energy prices have stabilised. We ask the Government and Ofgem to report its findings on the above …
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We call on the Government to consider the introduction of a social tariff for the most vulnerable customers and a relative tariff for the rest of the market, to be introduced once wholesale energy prices have stabilised. We ask the Government and Ofgem to report its findings on the above issues within nine months of the date of this report.
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Government response AI summary
The government states it is already protecting households through the Energy Price Guarantee and other existing policies, and will consider how price protection needs to evolve, with next steps to be set out in due course.
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Department for Business and Trade
40
Recommendation
Third Report - Energy pricing and the f…
Accepted
In order to deliver the Government’s target of a zero carbon electricity system by 2035, we further recommend that greater consideration is given to smart tariffs in the revised Energy Retail Market Strategy. Specifically, we ask the Government to consider how time of use tariffs can be supported while the …
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In order to deliver the Government’s target of a zero carbon electricity system by 2035, we further recommend that greater consideration is given to smart tariffs in the revised Energy Retail Market Strategy. Specifically, we ask the Government to consider how time of use tariffs can be supported while the necessary system reforms are being carried out. Consideration should also be given as to how to support the energy supplier market in engaging different customer groups in net zero and ensure sufficient protections are in place for vulnerable customers. (Paragraph 163). 80 Energy pricing and the future of the energy market Support for households
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Government response AI summary
The government indicates industry is making progress on implementation of market-wide half-hourly settlement, which Ofgem believes will be an important enabler of a more flexible, low carbon and low-cost energy system.
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Department for Business and Trade
41
Recommendation
Third Report - Energy pricing and the f…
Accepted
We are gravely concerned by the latest forecasts from industry experts that the price cap will increase to £3,244 in October 2022 and £3,363 in January 2023. This will have very serious consequences for households across the country, particularly those that are on low incomes, in fuel poverty, and in …
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We are gravely concerned by the latest forecasts from industry experts that the price cap will increase to £3,244 in October 2022 and £3,363 in January 2023. This will have very serious consequences for households across the country, particularly those that are on low incomes, in fuel poverty, and in vulnerable circumstances. The Government’s May 2022 support package is welcome but will now be eclipsed by the scale and longevity of the price increases, and we are concerned that public funds are still not being targeted adequately enough to those who need it the most. We urge the Government to provide an immediate and better targeted update to its support package that aligns with the expected scale of price increases.
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Government response AI summary
The government announced the Energy Price Guarantee, limiting typical household energy bills to £2,500 per year for two years, and highlighted other existing targeted support measures for vulnerable households.
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Department for Business and Trade
46
Recommendation
Third Report - Energy pricing and the f…
Accepted
Ofgem should require energy suppliers to take a pro-consumer approach to payments and debt collections. We urge Ofgem to take swift and firm action in response to suppliers breaching the Ability To Pay licence conditions and ensure that suppliers promote a range of debt repayment options.
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Ofgem should require energy suppliers to take a pro-consumer approach to payments and debt collections. We urge Ofgem to take swift and firm action in response to suppliers breaching the Ability To Pay licence conditions and ensure that suppliers promote a range of debt repayment options.
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Government response AI summary
Ofgem has announced four Market Compliance Reviews to drive improvement across the market, including one focused on how suppliers support customers in debt or payment difficulty and is taking enforcement action where necessary.
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Department for Business and Trade
47
Conclusion
Third Report - Energy pricing and the f…
Accepted
Energy prices are expected to increase to unprecedented levels and the Government’s May 2022 support package will no longer offset the significant increases for households. A considerable number of households will struggle to pay their energy bills and will be at risk of accruing large sums of debt to their …
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Energy prices are expected to increase to unprecedented levels and the Government’s May 2022 support package will no longer offset the significant increases for households. A considerable number of households will struggle to pay their energy bills and will be at risk of accruing large sums of debt to their energy provider. This could further destabilise the energy supply market and result in bad debt being Energy pricing and the future of the energy market 81 mutualised. The lack of data published by Ofgem on the levels of debt in the market makes it difficult for the sector to assess and address the extent of the issue.
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Government response AI summary
The government outlined actions to support people and businesses with their energy bills and tackle the root causes of the issues in the UK energy market, including the 'Energy Price Guarantee' and targeted support for vulnerable households.
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Department for Business and Trade
48
Recommendation
Third Report - Energy pricing and the f…
Accepted
We recommend that the Government develops a scheme to help vulnerable customers accelerate the repayment of debt that has accrued as a result of the energy pricing crisis, for example, by matching the contribution made by customers through the Fuel Direct scheme. We also recommend that Ofgem publishes data on …
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We recommend that the Government develops a scheme to help vulnerable customers accelerate the repayment of debt that has accrued as a result of the energy pricing crisis, for example, by matching the contribution made by customers through the Fuel Direct scheme. We also recommend that Ofgem publishes data on the levels of debt in the market on a quarterly basis. We ask Ofgem to update and publish its analysis on the levels of bad debt it expects energy suppliers to accrue this winter after accounting for further increases to the price cap and the Government’s support package announced in May 2022.
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Government response AI summary
Ofgem publishes data on customer debt on a quarterly basis, arising from analysis of data gathered under Social Obligations Reporting, and intends to publish updated analysis quarterly thereafter.
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Department for Business and Trade
50
Conclusion
Third Report - Energy pricing and the f…
Accepted
We are concerned by reports that self-disconnection is already at a record high, and this is before the expected, unprecedented rise to the energy price cap this winter. Ofgem only collects partial data on self-disconnection and does not have a sufficient understanding of the risks facing prepayment customers come October.
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We are concerned by reports that self-disconnection is already at a record high, and this is before the expected, unprecedented rise to the energy price cap this winter. Ofgem only collects partial data on self-disconnection and does not have a sufficient understanding of the risks facing prepayment customers come October.
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Government response AI summary
Ofgem introduced a quarterly request for information to gather data from larger domestic suppliers on self-disconnection and Ofgem's view is that it would be preferable to have longer-term data available before making it publicly available.
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Department for Business and Trade
54
Recommendation
Third Report - Energy pricing and the f…
Accepted
Energy efficiency is the quickest and most cost-effective way to reduce gas demand and lower household energy bills. The absence of a home insulation programme is an unacceptable gap in policy that must be urgently rectified. Since wholesale prices rose following July 2021, tens of thousands of homes could have …
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Energy efficiency is the quickest and most cost-effective way to reduce gas demand and lower household energy bills. The absence of a home insulation programme is an unacceptable gap in policy that must be urgently rectified. Since wholesale prices rose following July 2021, tens of thousands of homes could have been insulated each week had there been the political will to do so. Without addressing the underlying problem of draughty homes, the Government will again be forced to introduce costly and avoidable short-term fixes. While we would support action to boost the Energy Company Obligation, diverting funds away from other energy efficiency schemes is unacceptable.
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Government response AI summary
The government states that energy efficiency is a key priority and details the Energy Price Guarantee, the Energy Bills Support Scheme, and its commitment to improve homes to EPC band C by 2030.
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Department for Business and Trade
55
Recommendation
Third Report - Energy pricing and the f…
Accepted
We reiterate our previous views that the Government should implement urgent, far- reaching, and long-term measures to replace the Green Homes Grant scheme that provides the energy efficiency supply chain with confidence of enduring demand and ends the stop-start policy approach in this area once and for all. We urge …
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We reiterate our previous views that the Government should implement urgent, far- reaching, and long-term measures to replace the Green Homes Grant scheme that provides the energy efficiency supply chain with confidence of enduring demand and ends the stop-start policy approach in this area once and for all. We urge the Government not to divert funds from other energy efficiency schemes to pay for this. (Paragraph 217) Conclusion
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Government response AI summary
The government has committed £6.6bn this Parliament to improve homes to EPC band C by 2030, is consulting on raising Minimum Energy Efficiency Standards for privately rented homes to EPC band C by 2028, and is considering options to deliver £9.2bn to improve energy efficiency …
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Department for Business and Trade
58
Conclusion
Third Report - Energy pricing and the f…
Accepted
The impact of the energy price crisis on households is ongoing and severe, particularly in the context of other considerable inflationary pressures, and is likely to cause an unacceptable rise in fuel poverty and hardship this winter. With wholesale Energy pricing and the future of the energy market 83 prices …
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The impact of the energy price crisis on households is ongoing and severe, particularly in the context of other considerable inflationary pressures, and is likely to cause an unacceptable rise in fuel poverty and hardship this winter. With wholesale Energy pricing and the future of the energy market 83 prices continuing to rise, the energy price cap is now expected to increase to well over £3,000 this winter, and to remain elevated thereafter. The scale of these price increases now renders the Government’s May 2022 support package insufficient. The Government needs to provide an urgent update to the support available to avoid a very serious crisis this winter. The Government will need to take an agile approach to delivering vital support to households as the situation develops. But enduring solutions are needed, including an urgent consultation on a social tariff and a far- reaching home insulation programme.
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Government response AI summary
The government states it has already set out decisive action including the Energy Price Guarantee and other targeted support to address the energy price crisis.
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Department for Business and Trade
59
Recommendation
Third Report - Energy pricing and the f…
Accepted
With the worst yet to come, the consequences of the energy price crisis and wider cost-of-living crisis on customers, and energy suppliers, is still to be seen. The extent of these challenges cannot be dealt with by BEIS or Ofgem alone. The Prime Minister himself stated the Government’s response to …
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With the worst yet to come, the consequences of the energy price crisis and wider cost-of-living crisis on customers, and energy suppliers, is still to be seen. The extent of these challenges cannot be dealt with by BEIS or Ofgem alone. The Prime Minister himself stated the Government’s response to this pressing situation needs to be treated with the same level of seriousness as the Covid-19 pandemic. The responsibility to deal with this crisis spans across multiple Government departments and the Government needs to galvanise the resources and expertise at its disposal. This will require ministerial leadership and a cross-departmental taskforce. We recommend that the Government urgently sets up a cross-departmental taskforce, like the Brexit taskforce, to respond to the energy price crisis and wider cost-of- living. This taskforce should meet regularly to support Ofgem and other arms of the Government to do the work necessary to provide the best possible outcomes for consumers and stabilise the energy supply market. (Paragraph 221) 84 Energy pricing and the future of the energy market
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Government response AI summary
The government has taken decisive action to support people and businesses, including the Energy Price Guarantee limiting typical household bills to £2,500 a year for two years, the Energy Bill Relief Scheme providing a discount on wholesale prices for non-domestic customers, and targeted support for …
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Department for Business and Trade