The energy regulator Ofgem has been accused of sleepwalking into the price crisis that has seen a third of the UK’s household suppliers collapse, with a charity warning of a £2.6bn bill to be footed by consumers.
Citizens Advice said analysis of the cost of the 26 corporate failures to date, which forced millions of customers to be appointed a new supplier, had left the average household facing an exposure of around £94 each.
The calculation was based on additional burdens placed on stronger companies, including paying for energy for the new customers and protecting credit balances, which are recoverable via a levy.
Citizens Advice said it was the culmination of a failure by Ofgem to act against unfit energy suppliers for almost a decade.
It argued that the failed firms‘ business models, which see providers pay for raw energy closer to the point of use, were left horribly exposed when this year’s spike in wholesale gas costs struck.
Contracts for winter delivery rose by more than 400% at one stage, leaving smaller firms out in the cold because they were unable to pass on those costs to customers due to the government’s price cap on default tariffs used by the majority of households.
The cap, which rose by 12% in October to reflect some of the increase, is tipped to rise by an even higher margin in the spring.
Citizens Advice said mistakes and missed opportunities by the energy regulator had left the market in a “precarious” position.
It alleged there were multiple instances in which Ofgem did not act on evidence of rule-breaking and scaled back enforcement activity, leading to a culture of non-compliance with some suppliers even reliant on customer credit balances for working capital.
The charity’s chief executive, Dame Clare Moriarty, demanded an independent review of the market and new rules to protect consumers from paying a price for industry failure again.
She 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”.
The owner of British Gas, the largest supplier of gas and electricity to UK homes, has demanded all entrants face a ‘fit and proper’ test as the regulator handles the fallout.
An Ofgem spokesperson said: “Ofgem’s top priority is to protect energy consumers and we understand the challenges households and businesses are facing in light of the unprecedented increase in global gas prices.
“Ofgem’s safety net has protected more than 4 million customers, moving them to new suppliers, ensuring they don’t need to worry about their energy supply and protecting their credit balances. In addition, the price cap is protecting millions more from the full impact of high gas prices this winter.
“However, we accept that the energy market needs reform and quickly – the current system was not designed for this sort of extreme market event.
“Building on the approach we set out in October at Energy UK and our subsequent open letter to industry, in the next few weeks we will be announcing changes that will demonstrate the seriousness with which we are tackling the pace of change needed, the concerns around the financial resilience of the market, as well as ensuring that fair prices are reflected through the price cap.”
Planned reforms are tipped to include bolstering regular assessments of supplier finances, capital investment plans and hedging strategies.
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