Ofgem ‘failed to act against unfit energy suppliers for almost a decade’, damning report says

The charity said the regulator has missed many chances to control the energy market

The energy market saw a huge surge in prices this year driven by the rocketing cost of natural gas (Peter Byrne/PA Archive)

A regulator’s long-term failure to tackle a spiralling energy market has partly caused the recent huge spikes in the costs of gas and electricity, a charity has written in a damning report.

Citizens Advice is accusing Ofgem of failing to regulate the energy market for almost a decade.

In the report, the charity said that Ofgem’s mistakes and missed chances to control the market has contributed to the surge in prices this year.

The rise in wholesale prices has led to the collapse of 26 small energy suppliers that had served around four million customers.

The collapse had cost the average household around £94, latest figures suggest.

Citizens Advice has accused Ofgem of failing to act on evidence of rule-breaking in the industry and of cutting back on enforcement measures while the problems posed by suppliers got worse.

It is calling for an independent review of the causes of the market collapse, including Ofgem’s approach to compliance and enforcement, and reforms to ensure companies are fit to trade as energy suppliers.

It also wants a new “consumer duty”, similar to that being introduced by the Financial Conduct Authority, making companies accountable for the outcomes their customers’ experiences dealing with the companies.

The charity is calling for the government and Ofgem to protect consumers from steep increases to bills to pay for suppliers’ failures.

Citizens Advice chief executive Dame Clare Moriarty said: “Energy customers are facing a multibillion-pound bill, in large part because Ofgem missed multiple opportunities to regulate the market and tackle rule-breaking by suppliers.

“Recent wholesale price rises would have been hard to handle in any circumstances, but they need not have led to the collapse of a third of companies in the market.

“It’s now clear that reform is needed – and this isn’t just about avoiding another crisis.

“If consumers lack confidence in the energy market, or feel they’re getting a bad deal, it will be even harder to transition to net zero.

“So reform is vital for the future as well as for avoiding the mistakes of the past.”

Citizens Advice said Ofgem’s enforcement powers went “unused” and it has opened just one formal investigation into suppliers’ customer service.

The charity, which offers free advice to people facing financial and societal hardship, said Ofgem had failed to stop a single supplier taking on new customers in relation to customer service concerns since February 2019.

Regulatory “failings” led to a culture of non-compliance, with slow or missed action in response to evidence of licence breaches and on issues including accurate billing, access to phone lines for customers, and offering prepayment options, the report says.

The charity described poor practice as “rife”, with many companies showing clear evidence of financial unsustainability, including firms run out of the owners’ living rooms and kitchens.

The charity said it repeatedly raised concerns about poor practice and financial viability as new suppliers entered the market from 2010 to 2019, as well as having called for a formal review of the licensing regime as early as 2013.

However no review took place until 2018, with Ofgem only tightening the rules on new entrants in 2019 after 11 supplier failures.

Citizens Advice said that the sector showed financial weakness as a number of suppliers have been relying on overpaid customer account balances for capital.

Ofgem’s own analysis showed suppliers held a total of £1.4 billion in surplus credit in 2018.

Analysis suggested some consumer balances were “excessive”, with some customers reporting to Citizens Advice that their energy supplier was holding more than £1,000 of their money.

According to Ofgem, an average bill payer needed only £150 in credit to cover typical winter usage.

Ofgem said its safety net and price cap had protected millions of consumers amid “unprecedented” high global gas prices.

A spokesman said: “However, we accept that the energy market needs reform and quickly - the current system was not designed for this sort of extreme market event.

“Building on the approach we set out in October at Energy UK and our subsequent open letter to industry, in the next few weeks we will be announcing changes that will demonstrate the seriousness with which we are tackling the pace of change needed, the concerns around the financial resilience of the market, as well as ensuring that fair prices are reflected through the price cap.

“We welcome the opportunity to work alongside all consumer groups, including Citizen Advice, as well as the Government and the energy industry to make the changes needed as we all share the same objective to protect energy consumers now and in the future.”