Source · Select Committees · Business and Trade Committee
Third Report - Energy pricing and the future of the Energy Market
Business and Trade Committee
HC 236
Published 26 July 2022
Recommendations
6
Acknowledged
Para 45
We call on Ofgem to make full and proper use of its enforcement and compliance...
Recommendation
We call on Ofgem to make full and proper use of its enforcement and compliance powers to clamp down on rule breaking by suppliers, particularly relating to customer service standards. Ofgem should work with the Government to ensure it has …
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Government Response Summary
Ofgem has begun to consider the new powers that would be of benefit to consumers, including enforcement for unfit directors, the ability to appoint a third party to operate an energy supplier, the power to act against the parent company of a licensee, and making it quicker and easier to revoke a licence.
Department for Business and Trade
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15
Acknowledged
Para 66
We recommend that the Government urgently publishes its long-delayed Strategy and Policy Statement for Ofgem...
Recommendation
We recommend that the Government urgently publishes its long-delayed Strategy and Policy Statement for Ofgem to guide the regulator on how to manage the political and distributional trade-offs intrinsic to its responsibilities and clarify the split of responsibilities between Ofgem …
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Government Response Summary
Ofgem has been analysing responses to its policy consultation on Strengthening Financial customer credit balances and stress-testing and will share its revised analysis with the Committee.
Department for Business and Trade
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43
Acknowledged
Para 174
We recommend that the Government ensures there are sufficient safeguards in place for tenants to...
Recommendation
We recommend that the Government ensures there are sufficient safeguards in place for tenants to benefit from the Energy Bills Support Scheme. We recommend that the Government pays the scheme via a negative standing charge to mitigate the risk of …
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Government Response Summary
Ofgem continues to work with suppliers and the Department to prepare for both the implementation of an increased Energy Bill Support Scheme and the Energy Price Guarantee, providing support in scheme design, guidance, and monitoring supplier compliance.
Department for Business and Trade
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44
Acknowledged
Para 181
While the Government committed to publishing a Fairness and Affordability call for evidence over a...
Recommendation
While the Government committed to publishing a Fairness and Affordability call for evidence over a year ago, this is yet to materialise. This is a vital piece of work which will need to address how to allocate energy policy costs …
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Government Response Summary
Ofgem will share all available information on distributional effects of different policies with the Department and the Committee and intends to refresh the data used for distributional analysis, sharing updated assessments when available.
Department for Business and Trade
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45
Acknowledged
Para 182
We recommend that the Government urgently publishes its overdue Fairness and Affordability call for evidence,...
Recommendation
We recommend that the Government urgently publishes its overdue Fairness and Affordability call for evidence, particularly in the context of rising energy prices. We recommend that the review includes a distributional analysis of the impact that recovering policy costs from …
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Government Response Summary
Ofgem will share all available information on distributional effects of different policies with the Department and the Committee and intends to refresh the data used for distributional analysis.
Department for Business and Trade
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51
Acknowledged
Para 202
We recommend that Ofgem urgently improves its data collection on self-disconnection and publishes this on...
Recommendation
We recommend that Ofgem urgently improves its data collection on self-disconnection and publishes this on a more frequent basis. We ask Ofgem to conduct an impact analysis on how expected increases to the price cap this winter will affect customers …
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Government Response Summary
Ofgem introduced a quarterly request for information on prepayment meter customers, including self-disconnection, in Q4 2021 but is waiting to have at least one year of data before making it publicly available, possibly in early 2023; they also state the existing Ability to Pay rules require suppliers to assess a consumer’s ability to pay and agree an affordable payment plan.
Department for Business and Trade
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53
Acknowledged
Para 206
We call on Ofgem to enforce its New and Replacement Obligation in the supplier licence.
Recommendation
We call on Ofgem to enforce its New and Replacement Obligation in the supplier licence. We recommend that the Government makes it mandatory for all prepayment households to have a smart meter installed urgently, irrespective of supplier, so that 82 …
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Government Response Summary
Ofgem agrees with the benefits of smart prepayment meters but is focused on other areas due to resource constraints; they expect new non-smart meter installations to decline as customers become more aware of the benefits and stocks of traditional equipment falls.
Department for Business and Trade
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Conclusions (18)
1
Conclusion
Acknowledged
Para 25
Until June 2019, Ofgem granted energy suppliers a licence to operate in the market without ensuring they had access to sufficient levels of working capital, an acceptable business plan, or were run by individuals with relevant expertise. Ofgem’s delay to the Supplier Licensing Review was unacceptable and inexcusable which, if …
Government Response Summary
The Department for Business, Energy and Industrial Strategy has launched a cross-Government Affordability Sprint to share data and information on affordability, and Ofgem will support the new Prime Minister and Cabinet.
3
Conclusion
Acknowledged
Para 36
Oxera’s review of Ofgem’s performance to regulate the retail market raised serious and fundamental questions about the regulator’s ability to carry out its primary duties. We agree with its findings that Ofgem has no proper frameworks for defining and measuring what consumer interests are or what effective competition means, and …
Government Response Summary
Ofgem understands the Committee is eager to see the detail of its compliance and enforcement activity and actions and proposes to share this in due course, with a broader package of information requested in the Committee’s report, the annual report and Ofgem accounts in July following each financial year.
7
Conclusion
Para 46
Whilst we have been reassured by Jonathan Brearley that changes are being made to the governance, leadership, and performance of Ofgem we remain deeply concerned that such negligent behaviour was able to take place for so long. If Dermot Nolan was still in post, we would be calling for his …
8
Conclusion
Acknowledged
Para 55
Avro Energy improperly used customers’ money, including siphoning off customers’ cash to different businesses in the directors’ names, issuing loans to the directors, and paying poorly performing executives an unreasonably high salary. We were disappointed by the admission from Ofgem’s former CEO, Dermot Nolan, that the regulator was oblivious to …
Government Response Summary
Ofgem acknowledges the committee's concerns and notes that it has provided views to the Government regarding the Strategy and Policy Statement.
10
Conclusion
Para 57
We further call on the Government to review whether regulators such as Ofgem should be given new powers to bring enforcement action for unfit conduct by energy company directors given the very limited scope for The Insolvency Service to do so. We consider this to be particularly important for energy …
14
Conclusion
Para 65
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 …
17
Conclusion
Acknowledged
Para 76
We are concerned that the costs of the Supplier of Last Resort process, which has been added to regressive standing charges on electricity bills, has increased affordability challenges for the most vulnerable customers, at the most difficult time. This is wrong. We welcome Ofgem’s recognition of the impact that regressive …
Government Response Summary
Ofgem is reviewing its approach to the Supplier of Last Resort levy in light of the Energy Price Guarantee and will update the Committee in due course.
20
Conclusion
Para 86
We support the National Audit Office’s recommendation that the Government and Ofgem review and subsequently update the Supplier of Last Resort process to address the problems that arose over the last year, including delays in the transfer of customer information by administrators which prevented the retrieval of credit balances, the …
21
Conclusion
Acknowledged
Para 94
The Special Administration Regime has been used for the first time to deal with the failure of Bulb Energy, leaving taxpayers exposed to billions of pounds worth of costs. The decision not to implement a hedging strategy may have led to the sale of Bulb being less desirable and significantly …
Government Response Summary
Ofgem is working with the Department to ensure the development of a clear and coordinated roadmap for the future energy retail market to support the achievement of an effective transition to net zero in line with the targets set by Government.
24
Conclusion
Acknowledged
Para 104
We support Ofgem’s objective to ensure energy suppliers are well-capitalised and prudently run. If its plans to introduce a capital adequacy regime and improve its monitoring of suppliers’ approach to risk management are executed effectively, these measures could reduce the moral hazard in the market and the cost of mutualisation, …
Government Response Summary
Ofgem continues to work with suppliers and the Department to prepare for the implementation of an increased Energy Bill Support Scheme and the Energy Price Guarantee, providing support in scheme design, guidance, enacting Licence Condition changes and monitoring supplier compliance.
30
Conclusion
Acknowledged
Para 130
The design of the energy price cap has contributed to recent instability in the supplier market. Ofgem failed to properly stress test its design against a range of scenarios or consider how it interacted with its other regulations. The methodology forced suppliers to subsidise customers, which was clearly not the …
Government Response Summary
Ofgem agrees with the Committee’s assessment of the benefits of Smart prepayment meters and is committed to ensuring that customers receive all the benefits of fully working and interoperable smart meters, but enforcement activity is currently focused on other areas of work due to resource constraints.
32
Conclusion
Acknowledged
Para 134
Ofgem should update the cost benefit analysis of its proposal for a quarterly price cap, so it reflects the risk of prices increasing this January, in order for Ofgem, the Government, and Parliament to fully understand the potential impacts for vulnerable customers.
Government Response Summary
Ofgem is reviewing its approach to the price cap in light of the Energy Price Guarantee and will update the Committee in due course.
36
Conclusion
Acknowledged
Para 151
The Government’s failure to regulate third-party intermediaries in combination with Ofgem’s failure to regulate energy suppliers led to third-party intermediaries promoting energy suppliers with flawed business models and unsustainable pricing. We are concerned that third-party intermediaries did not pay sufficient regard to understanding customers’ needs and ensuring customer service standards.
Government Response Summary
The government recognizes the risks to consumers from unregulated third-party intermediaries (TPIs), and is considering responses to a call for evidence while assessing the impact of recent market events. Ofgem has implemented reforms including requiring suppliers to only work with energy brokers signed up to a qualifying alternative dispute resolution scheme.
38
Conclusion
Acknowledged
Para 161
The previous Energy Retail Market Strategy was primarily driven by the objective to accelerate switching rates. The collapse of energy retailers demonstrated the flaws of this approach. The revised retail strategy will need to develop a market that differentiates not just on price, but on the services offered by suppliers. …
Government Response Summary
Ofgem is working with the Department to ensure the development of a clear and coordinated roadmap for the future energy retail market and the Department is expected to publish an update to their Energy Retail Market Strategy later this year.
42
Conclusion
Acknowledged
Para 173
We note some delivery risks in ensuring the Energy Bills Support Scheme reaches vulnerable customers this winter, including certain types of tenants, customers using legacy prepayment meters, and those who are in debt to their energy provider.
Government Response Summary
Ofgem continues to work with suppliers and the Department to prepare for the implementation of an increased Energy Bill Support Scheme and the Energy Price Guarantee, providing support in informing scheme design and guidance, enacting Licence Condition changes and monitoring supplier compliance.
52
Conclusion
Acknowledged
Para 205
Replacing legacy prepayment meters with smart prepayment meters is crucial to protecting vulnerable customers in the coming months because they allow suppliers to identify customers who are at risk of self-disconnection and provide immediate support. Yet we are hearing reports that once again Ofgem is not enforcing its rules which …
Government Response Summary
Ofgem agrees with the committee's assessment of the benefits of smart prepayment meters and is committed to ensuring customers receive those benefits, but enforcement activity is currently focused on other areas due to resource constraints and traditional meter installations are decreasing.
56
Conclusion
Acknowledged
Para 218
A systemic failure in regulation left the energy supply market, and ultimately taxpayers, more exposed when the global wholesale energy crisis began. Some energy supplier businesses were allowed to behave in an entirely unacceptable way, without any consequence for their actions. The Government prioritised competition over effective market supervision, failing …
Government Response Summary
BEIS maintains a regular dialogue with Ofgem to review lessons learned and understand where policies can be enhanced to improve outcomes, and will work with Ofgem and relevant bodies to understand if there are any gaps within the current regime which prevent unfit conduct by energy company directors being appropriately addressed.
57
Conclusion
Acknowledged
Para 219
The energy price crisis is putting continued strain on the remaining suppliers in the market. At the same time, Ofgem is proceeding with a programme of major regulatory reform with the objective to reverse its previous litany of shortcomings and shore up the financial resilience of the market. However, if …
Government Response Summary
The government acknowledges Ofgem's efforts to improve the robustness of the energy supply market, including an independent review into supplier failures and a new Review of UK Energy Regulation, and details its own oversight of Ofgem.