Source · Select Committees · Business and Trade Committee
Recommendation 2
2
Accepted
Paragraph: 30
The lack of ongoing requirements for suppliers operating in the market allowed thinly capitalised companies...
Conclusion
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.
Government response summary AI-generated
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.
Summary of the government's response below — read the verbatim text to verify.
Paragraph Reference:
30
Government Response
Accepted
HM Government · verbatim extract
Accepted
Ofgem launched its supplier stress testing regime earlier in 2022 and is analysing the responses to the second iteration ahead of winter. This forms part of Ofgem’s standard monitoring of supplier risk management practices, supported by regular requests for information such as hedging and financial data and proactive engagement with suppliers. Ofgem proposed to introduce a capital adequacy framework in the policy consultation on Strengthening Finance Resilience. This framework would build on this monitoring and engagement to introduce specific capital adequacy requirements for suppliers. Ofgem plans to develop an adaptive framework to ensure the right level of resilience, while minimising unnecessary burden and barriers to innovation. Ofgem has been expanding its capabilities in response to the energy crisis and plans to build on this to deliver a new capital adequacy regime. Implementation will be considered as part of the detailed plans for this policy and reflected appropriately in the annual Forward Work Programme.
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