Energy bills could rise to almost £1,900 a year from April as supplier collapses, caused by a decade of regulatory failings, add to the pain of record wholesale prices, a damning report warns.
Citizens Advice accuses Ofgem of a “catalogue of errors” that will mean households face paying an extra £94 a year on their energy bills from April to foot the £2.6 billion of costs from a wave of supplier failures over the past four months.
It says this increase will come “on top of an expected increase in the price cap of between £400 and £520 in the same period”, after unprecedented rises in wholesale gas and power costs.
The price cap for 11 million households on standard tariffs has already risen to £1,277 a year from October but the report implies an increase of as much as £614, or 48 per cent, taking typical bills to as much as £1,891 when the cap is next updated in April.
Citizens Advice says that Ofgem “failed to act against unfit energy suppliers for nearly a decade” despite repeated warnings from the influential charity and many others.
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“Ofgem allowed unfit and unsustainable energy companies to trade with little penalty. Despite knowing about widespread problems in the market, it failed to take meaningful action,” it said. Rules designed to ensure suppliers were fit to trade “came too late and didn’t go far enough” while the rules that did exist were not enforced.
As a result, the regulator left the market in a “precarious position” when gas prices surged this year, precipitating the collapse of 26 companies supplying almost four million households since August.
Analysis by consultancy BFY for Citizens Advice, estimates the costs arising from 25 of these failures already stand at £2.6 billion that consumers will pay on their energy bills from April. That excludes the costs associated with the collapse of Bulb, Britain’s seventh-biggest supplier with 1.6 million households, which is being dealt with through government-backed special administration and has already required a £1.7 billion taxpayer loan.
The charity calls for an independent review of the causes of the market collapse and action by the government and Ofgem to “protect consumers from unnecessarily steep increases to bills to pay for supplier failures”.
Citizens Advice is the statutory advocate for energy consumers and has been calling for Ofgem to review checks on new suppliers since 2013. No such review was carried out until 2018 and rules on new entrants were not introduced until 2019. By then, dozens of companies had entered the market with some “run out of the owners’ living rooms and kitchens”, the charity says.
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Companies were allowed to rack up huge debts including collecting hundreds of pounds of customers’ money in advance and using this to fund their growth. When suppliers fail, customer credit balances are reimbursed from a levy on all households.
Citizens Advice said that “Ofgem let companies get away with breaking the rules”. The charity warned Ofgem on ten separate occasions between 2018 and 2021 about potential rule breaches by Avro Energy, yet the supplier was allowed to carry on signing up customers, before collapsing in September. The report estimates that the collapse of Avro alone will cost bill-payers £679 million.
Dame Clare Moriarty, Citizens Advice chief executive, said: “Energy customers are facing a multibillion-pound bill, in large part because Ofgem missed multiple opportunities to tackle rule-breaking by suppliers.”
Ofgem said: “We accept the energy market needs reform — the system was not designed for this sort of extreme market event. 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.”
A government spokesman said the energy price cap was “the best safety net available to protect consumers from excessive price hikes”.
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Behind the story
Ofgem has sought to defend its record by pointing to the unprecedented nature of the gas price shock that precipitated the latest wave of supplier failures (Emily Gosden writes).
“A 500 per cent increase in the price of gas is certainly not something we’ve seen before in the market,” Jonathan Brearley, chief executive, said last week. A spokesman will say today: “The current system was not designed for this sort of extreme market event.”
The implication is that Ofgem and failed suppliers are hapless victims of a “black swan” event — that no one could have seen this crisis coming. Yet, as today’s Citizens Advice report lays bare, that explanation does not hold water. True, the unprecedented high prices have accelerated the collapse of the house of cards in the retail market, and have inflated the resulting bill for consumers. But this was an accident waiting to happen.
Ofgem was warned time and again — by industry, the media and Citizens Advice — over the precarious state of numerous suppliers and the financial impact on all consumers if they were to collapse.
Ofgem’s policy of socialising the costs of supplier failures was introduced in 2016. Before a single supplier had failed, established companies had called for tougher checks on new entrants, flagging the risks that otherwise their customers would be forced to pay for the failure of those who relied on signing up new customers on unsustainably cheap deals akin to Ponzi schemes.
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A wave of suppliers collapsed in 2018: two years ago Citizens Advice estimated that the bill to consumers had already hit £255 million and reiterated its calls for tougher regulation.
Ofgem said that it did act to strengthen suppliers’ resilience. But with the bill from the latest wave of collapses at least ten times that level, it is clear that those actions they took were too little, too late.
