The energy regulator is responsible for a series of mistakes and missed opportunities that allowed the collapse of dozens of energy suppliers and led to spiralling household bills, according to a report by a leading consumer rights charity.
Citizens Advice has blamed the industry regulator, Ofgem, for failing to take action against rule-breaking suppliers for almost 10 years despite mounting concerns over the energy market.
In a damning report, the consumer watchdog warned that there was evidence of financial weakness in the energy market “long before this year’s crisis”, but said Ofgem had failed to heed warnings, meaning households would bear the brunt of its “catalogue of errors”.
The market has lost 26 suppliers amid record high gas prices, which could mean household bills rising by an extra £94 to cover the cost to companies of taking on the extra customers.
Clare Moriarty, chief executive of Citizens Advice, said households would face a multi-billion-pound bill “in large part because Ofgem missed multiple opportunities to regulate the market and tackle rule-breaking by suppliers”.
The report found that Ofgem failed to act following repeated warnings from Citizens Advice over the precarious finances of a raft of small suppliers that entered the energy market between 2010 to 2019.
It had also been slow to take action in recent years even as the industry’s customer service levels declined and financial instability increased, according to the report.
“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,” Moriarty said.
The regulator brought in plans to toughen financial checks on small suppliers at the beginning of 2020, but has taken action against only one despite evidence that many in the market relied on their customers’ credit balances to stay afloat.
It has also opened only one formal customer service investigation in the last three years, after the number of people working on enforcement at Ofgem fell by a quarter.
Citizens Advice has called for an independent review of the causes of the market collapse, including Ofgem’s regulation and reforms, and action by the government and Ofgem to protect consumers from unnecessarily steep increases to bills to pay for the cost of supplier collapses.
“If consumers lack confidence in the energy market, or feel they’re getting a bad deal, it will be even harder to transition to net zero. So reform is vital for the future as well as for avoiding the mistakes of the past,” Moriarty added.
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”.