Ofgem ‘failed to understand and tackle risks in the market’ argues Citizens Advice

Energy regulator Ofgem “failed to understand and tackle risks in the market” in the run-up to the industry crisis last winter, argued Citizens Advice.

Gillian Cooper, head of energy policy at the advisory group has said that Ofgem has intervened too late in the market to protect customers from spiralling bills and market carnage – which has seen household bills soar to nearly £2,000 per year.

She said: “By the time it took action, the ship had already sailed.”

Citizens Advice outlined its critical stance towards Ofgem after the watchdog published an external review from Oxera into the collapse of nearly 30 energy suppliers since last September.

The consultancy firm argued that Ofgem failed to sufficiently check the financial resilience of new suppliers to the market prior to the energy crisis – with the domestic energy sector peaking with 80 firms in 2018.

It suggested the regulator was so keen to incentivise competition in the retail sector that it gave new entrants a “free bet” — enabling them to join with minimal risk and almost no downside to exiting.

Oxera said: “Ofgem’s approach to regulating the market created the opportunity for suppliers to enter the market and grow to a considerable scale while committing minimal levels of their own equity capital. By pursuing a high-risk/high-reward business model, the suppliers would benefit from any upside, while being able to exit without any downside.”

Ofgem has accepted the findings of the report, and has recently unveiled multiple measures to reduce instability in the energy market.

This includes proposals for hedging controls and reducing the implementation of the price cap, while it has also introduced financial stress tests and temporary levies for firms taking switching customers.

However, Citizens Advice has argued these measures are too little too late, and has criticised Ofgem for the huge clean up bill for energy consumers from the instability across the energy market.

The combination of soaring wholesale costs and the constraints of the price cap resulted in 29 suppliers collapsing since last September, directly affecting over four million customers.

This includes Bulb Energy (Bulb), the UK’s seventh biggest supplier with 1.7m customers, which has been placed on life support since last November, propped up by transfusions of public money totalling £2.2bn, the biggest taxpayer bailout since RBS nearly crumbled in 2008.