Britain’s energy regulator failed to act against unfit energy suppliers for nearly a decade, leaving the market vulnerable to this year’s spike in wholesale prices, a leading debt charity alleges today.
Citizens Advice finds that mistakes and missed opportunities left the market in a precarious position when gas prices surged in 2021.
Since the rise in prices, 26 suppliers have now collapsed, hitting four million households and leaving consumers with a bill of £2.6bn, the charity estimates, an average cost to every UK household of £86.
That figure excludes a £1.7bn taxpayer loan underpinning Teneo’s rescue of Bulb.
Repeatedly, the charity alleges, Ofgem failed to act on evidence of rule-breaking, scaling back its enforcement staff and their activity, even as concerns grew.
Enforcement powers went unused as supplier behaviour worsened, Citizens Advice alleges:
- Against three years’ reported declines before 2021 in suppliers’ customer service, Ofgem opened only one formal probe. The regulator’s last use of its powers, preventing a supplier taking on new customers despite customer service concerns known to it, came in February 2019.
- In early 2021 Ofgem introduced new financial checks on suppliers. Yet only one of the twenty who failed between August to mid-November this year had the “living will”, required under by the regulator’s new rule.
- Over the four years preceding the crisis, with firms failing and supplier conduct worsening, Ofgem’s enforcement staff dropped by 25%.
- Ofgem permitted a culture of non-compliance to grow across the power industry. It missed or delayed its responses to evident licence breaches, in matters such as inaccurate billing, phone access lines for customers, or extended prepayment.
Adding to under-enforcement, Ofgem flunked chances to reform the market, says Citizens Advice:
- As early as 2013 the charity called for Ofgem to formally review its powers to accredit suppliers, highlighting concerns over poor practice and finances. About failed Avro Energy alone, Citizens Advice claims it contacted the regulator ten times from 2018 onwards to highlight poor practice
- No market review arrived until 2018, and Ofgem only raised threshholds for new entrants in 2019, after 11 suppliers had crashed. Tighter ‘living will’ rules followed only in this year; they were not enforced
- Poor practice among suppliers became “rife”, the charity charges. Amid clear evidence of financial unsustainability, some licensees were run out of owners’ living rooms
Too much customer money was used to prop up ailing firms, Citizens Advice:
- Ofgem allowed suppliers to amass ‘excessive’ consumer cash up front. The regulator’s own estimate is that, to cover winter use, an average home’s account needs to be only £150 in credit. Yet balances of the households contacting Citizens Advice after their supplier crashed, averaged £353. Some failures held over £1,000 of clients’ money.
- For too long, the charity alleges, too many suppliers relied on customers’ credit to prop up their working capital. Ofgem’s own analysis showed that in 2018 suppliers together held £1.4bn in surplus credit
Citizens Advice’s chief executive Dame Clare Moriarty said:
“Energy customers are facing a multi-billion 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.
Transitioning to the government’s Net Zero will be harder, said Ms Moriarty, if consumers lack confidence or feel they’re getting a bad deal.
“So reform is vital for the future,” said the charity boss, “as well as for avoiding the mistakes of the past.”
An Ofgem spokesperson said the regulator had accepted that “the current system was not designed for this sort of extreme market event” and that the energy market needed “reform and quickly”.
The regulator plans to set out changes in the next few weeks which “demonstrate the seriousness” with which it is tackling the “pace of change needed”, the spokesperson added. The spokesperson also welcomed the opportunity to work alongside all consumer groups, including Citizen Advice, “to protect energy consumers now and in the future”.
