Households paying £94 extra on energy bills due to regulator’s failure

Ofgem ‘failed to strike balance’ between competition and financial resilience

Consumers have been forced to pay almost £100 more for their gas and electricity due to Ofgem’s failure to regulate the energy supply market properly, a new report has found.

The report by the House of Commons Public Accounts Committee found that the collapse of 29 energy suppliers as prices spiked over the past year cost a total of £2.7bn – or an average £94 for every household in the country.

The government has already budgeted a further £1.9bn to keep Bulb Energy running, with the final cost to taxpayers unknown until the company is sold.

Between the autumn of 2021 and the summer of 2022, wholesale prices for gas and electricity soared to as much as 10 times their normal level. The surge in prices was unsustainable for a number of suppliers, whose charges to customers were capped by Ofgem.

But the PAC report found that problems in the energy supply market were evident as early as 2018, with Ofgem failing to “strike the right balance between promoting competition in the energy suppliers market and ensuring energy suppliers were financially resilient”.

Ofgem’s “failure to effectively regulate the energy supplier market” was exposed by the sharp rise in prices, which led to the collapse of companies providing power to four million households, which had to be transferred to surviving firms.

The committee found that Ofgem’s price cap was “providing only very limited protection to households from increases in the wholesale price of energy”, noting that the regulator believes prices could “get significantly worse through 2023”.

It said that the treatment of vulnerable customers, who already pay higher energy prices, was “unacceptable”.

PAC chair Dame Meg Hillier said: “It is true that global factors caused the unprecedented gas and electricity prices that have caused so many energy supplier failures over the last year, at such terrible cost to households, but the fact remains that we have regulators to set the framework to shore us up for the bad times.

“Problems in the energy supply market were apparent in 2018 – years before the unprecedented spike in prices that sparked the current crisis, and Ofgem was too slow to act.

“Households will pay dear, with the cost of bailouts added to [record-high] bills.

“The PAC wants to see a plan, within six months, for how government and Ofgem will put customers’ interests at the heart of a reformed energy market, driving the transition to net zero.”

The GMB union, which represents many workers in the energy industry, said that the market model had failed consumers.

National secretary Andy Prendergast said: “The government’s remorseless attempt to use the market to regulate energy has been a massive disaster that has left millions of responsible households worse off.

“In reality, the market may be the right solution when it comes to selling tins of beans but has been an abysmal failure when applied to energy. The simple fact is that energy is an essential service and needs to be treated as such.

“Rather than expect the public to pick between suppliers – many of whom appear to have been trading without the necessary capital to underwrite their commitments – people simply want a simple option that gives them the best price.

“Sadly, Ofgem appears to be a regulator that doesn’t regulate . As a result, households are picking up the bill for their costly failure.”

An Ofgem spokesperson said that many of the issues highlighted by the PAC had been covered by the independent report which it commissioned and published earlier this year and whose recommendations it is now implementing.

“The sheer scale and pace of this once-in-a-generation global energy price shock meant supplier failures were seen all over the world,” said the spokesperson. “However, the supplier of last resort scheme acted as a vital safety net for British consumers, ensuring they continued to receive energy when their supplier failed and kept their credit balances. This safety net inevitably incurred costs.

“Looking ahead to this winter, prices remain volatile, however the market is now in a much more resilient position, partly due to robust steps we’ve taken to reduce the risk of future supplier failures and to raise the bar on entry for new suppliers.”