The energy regulator, Ofgem, is beginning to grasp something about the energy supply market we noticed some years ago.
Its determination to protect customers more effectively just by increasing competition has failed.
News of small energy companies going bust in numbers (1) has exposed the regulator’s strategy (helter-skelter rise in number of suppliers; insist ‘unengaged’ customers “shop around”) as stubborn and expensive.
The consequences are serious: anxiety for affected households; problems for suppliers’ staff and creditors; higher bills for all, because suppliers collectively have to cover losses and can recover costs from their customers. (2)
No wonder Ofgem has finally listened to Citizens Advice and others and is making it harder to take on a supply licence and begin competing for business. (3)
Meanwhile, responding to wide concern about proven overcharging, the government legislated for tighter energy market regulation. It has required Ofgem to impose a price cap on the bills of millions of customers who pay high standard variable tariffs.
Ofgem has accepted the need to change its licensing policy. However, its compliance with the new law on price regulation appeared rather more grudging.
Market competition can be good for energy customers. Ofgem is right about that and required to promote it. But all markets create winners and losers and, when the product or service is something every family must buy, an effective regulator must minimise the harm to the losers.
1) One Select ceases trading and becomes third energy supplier to go bust in three weeks, The Telegraph, 10/12/18
2) A former chief energy regulator, Stephen Littlechild, said the shortfall (over £58 million this year) “is to be recovered from other suppliers. So prudent suppliers, and ultimately their customers, will have to bail out imprudent ones.” Guardian Letters, 16/12/18
3) Ofgem supplier licensing proposals “would significantly tighten the rules”, Citizens Advice, 21/11/18