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Response to Ofgem’s action plan on retail financial resilience

27 January 2022

Response to Ofgem’s action plan on retail financial resilience [ 230 kb]

Recent market turmoil has affected over 4 million households, and has left a bill for consumers of over £2.4bn. While wholesale gas market conditions are the proximate cause, we entered the crisis with too many energy suppliers in a weak position. Previous reforms to tackle problems in the market were too slow, and companies were able to flout the rules that did exist to protect consumers.

We agree with Ofgem that further reforms to improve supplier risk management and protect consumers are vital and urgent. We therefore broadly support the plan put forward at this stage. However, we think it should have a clearer objective to rebuild consumer trust, and deliver more transparency of the resilience of the market and individual suppliers. Some actions within the plan should be accelerated where there is most confidence that they are necessary. In particular, steps to limit mutualisation of the Renewables Obligation and credit balances have been considered in detail and repeatedly delayed in recent years, and should now be taken forward swiftly.

There is also clear evidence that many of the rules put in place by Ofgem were not being followed, and that its approach to enforcement and compliance was not effective at improving supplier resilience. The plan should incorporate considerations of how these functions can be improved.

This is a very significant programme of work for Ofgem. It will need to be prioritised and adequately resourced in order to deliver these reforms successfully while continuing its other work, much of which is essential in order for us to achieve our net zero goals.