BEIS Committee Chairman Darren Jones MP begins today’s hearing by comparing the energy market crisis to the financial crisis and asking whether Ofgem has failed to effectively regulate and manage the sector.
Jones points out that 29 suppliers have gone bankrupt since the start of last year, meaning £2.5billion could be charged to customer bills to pay for those defaults.
Ofgem CEO Jonathan Brearley said there had been unprecedented changes in the wholesale energy market, with gas prices this winter five times higher than a year ago.
This has led to a huge rise in bills, and Brearley says he knows the £700 rise in energy bills announced last week will be very worrying for customers, as they also face “d other much greater financial pressures”.
And on top of that, around four million people were affected by the collapse of those 29 providers, Brearley adds.
As a regulator, I hope we never have to experience either of those two things again.
Brearley adds that Ofgem protected protected customers, ensuring their energy supplies and credit balances were maintained as they moved to new suppliers.
But our regulations must change, he adds.
Brearley says the price cap has protected customers through the winter. But it must become more adaptable and flexible to follow the volatility of energy prices (Ofgem proposes to change it every three months, and no longer twice a year as currently).
And “financial regulation needs to be tougher,” says Brearley, admitting Ofgem should have done so before the crisis.
We need a retail sector that is more resilient and better able to weather the kind of shock we have experienced.
We accept that if we had done this earlier it would have been better for the customers.
[Many suppliers failed to hedge themselves against surging wholesale prices, and were unable to cope as the price cap prevented them lifting prices for consumers].