Ex-Ofgem says regulator should have tightened rules sooner

In an interview with the Financial Times, Dermot Nolan - who ran the energy regulator for six years until February 2020 - said he thought the crisis had been caused by extreme rises in wholesale electricity and gas prices in recent months and some companies “gambling” and taking a “very risky position that this price rise would not occur”.

He added: “There are absolutely legitimate questions about whether Ofgem should have acted much earlier to stop this. I suspect in some ways, perhaps looking back with the benefit of hindsight, I might have gone for stronger licence conditions earlier.”

Ofgem introduced tougher rules for new suppliers entering the market back in 2019, including the fact that firms had to prove they had sufficient funds to trade for a year, and that directors were required to detail if they had past criminal convictions and business failures.

But there has been criticism from analysts and those remaining in the market that the rules were introduced too late. In addition to this, some smaller suppliers have blamed the annual energy price cap for the market turmoil.

In his interview, Nolan said he “did not think about a situation where the price cap was the cheapest tariff in the market” but insisted the policy was not to blame for the current turmoil. He added: “By and large I think the competition has yielded lower cost for consumers.

“On service it’s been mixed, you’ve had some very poor service by new entrants but you’ve also had some extremely good service by some new entrants as well.”

The intervention came in the same week that three more energy providers - ENSTROGA, Igloo Energy and Symbio Energy - announced they had ceased trading. A supplier of gas and electricity to 233,000 customers, together they represent less than one percent of domestic consumers in the market.

It brings the total number of providers to cease trading over the past few weeks up to nine - with more than 20 UK energy suppliers going bust since August 2020. And, while no household has been left without a provider due to Ofgem’s Supplier of Last Resort process, it’s expected consumers will end up with a collective bill of £826m for rescuing customers of energy suppliers that have collapsed.

The research published by wealth management group Investec also suggested that the cost of rescuing customers whose suppliers have gone to the wall could translate into every household being billed in the region of £30 each.

Martin Young, an analyst at Investec, also said the difference between how much suppliers can charge orphaned customers under Britain’s annual energy price cap and the cost of buying energy at today’s record wholesale prices could result in an excess cost of “at least £50” per consumer.