OFGEM has proved incompetent as the regulatory authority of the UK’s retail energy market

Ofgem is incompetent, so says the Business, Energy and Industrial Strategy Committee in their latest report “Energy pricing and the future of the energy market”. Ofgem allowed suppliers to enter the UK market without checking if they had access to adequate capital. These companies had little expertise and no business plans to speak of. Ofgem allowed these companies to be over reliant on their customers credit balances to remain solvent. Once wholesale prices rose, it was inevitable that large numbers of these companies would go bust which they did with alarming speed.

In the UK, twenty nine energy suppliers went bust between July 2021 and May 2022. 2.4 million customers were moved to alternative suppliers under the Supplier of Last Resort process. One company, Bulb, was too big to be accomodated by this process and The Special Administration Regime was used for the first time in November 2021. This allows the Government to support Bulb and its customers. So far this support has amounted to £2 billion which may be offset if Bulb is sold, but the Government does have the option to claw back the money with a levy on energy bills.

The past year year has been devastating for families up and down the UK, with energy prices being a core factor in the ongoing cost of living crisis. Ofgem’s price cap was designed with good intentions, but led to energy companies supplying customers at a loss over the Winter of 21/22. The price cap in November 2021 was fixed at around 19p per KWh, while wholesale prices were often over 40p per KWh. In April 2022, the price cap increased, allowing companies to charge 29p per KWh over the Spring and Summer. Further price spikes in wholesale energy prices, some due to Russia’s “special operation” in Ukraine, will mean a rise in the price cap in October 2022, to £3,244, which works out at around 40p per KWh. A level which is simply unsustainable for many millions of people in the UK.

Rishi Sunak has announced a measure to pay the energy companies £10 billion to discount the bills of every household in the UK by £400. This is, effectively, a bailout of the energy suppliers who are facing problems due to customers not having the means to pay them. According to the report, “The Government must immediately update its support, targeting this at customers who are on low incomes, fuel poor, and in vulnerable circumstances, and develop a scheme to support vulnerable customers to accelerate the repayment of energy debt resulting from this crisis.” I also think the Government needs to look at the standing charges being charged by energy providers, £15 a month per meter, can’t be right.

The truth is, high energy bills are here to stay and people who can’t afford to pay are going to have to be helped or there are going to be a lot more deaths each winter due to hypothermia and/or malnutrition. I don’t think the current Government has grasped the scale of the problems this country faces in terms of its energy policy. Announcing new nuclear power plants is all well and good, but the electricity produced isn’t that cheap and it’s not due to come on stream for decades. Maybe it’s time to massively subsidise domestic wind turbines, solar panels and storage batteries, then at least people will be able to generate their own electricity without having to rely on the National Grid.

Ofgem changes energy price cap changes to every three months (was every six months)

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