UK energy market regulators should have introduced stricter rules much earlier to ensure the financial resilience of household suppliers, said Forgem’s former CEO.
Dermot Nolan, who led Ofgem for six years until February 2020 and was in the post during the dramatic expansion of the UK energy retail market, “better than both existing” if there was a “benefit of wisdom”. He said he would have implemented “strong license terms” early. And new suppliers.
Ofgem’s oversight of the UK’s crisis-stricken energy retail market is being scrutinized as seven suppliers of gas and electricity to 1.5 million households. Folded in the last 7 weeks.. According to Ofgem, there were 49 suppliers in March this year.
The industry has been hit by record wholesale energy prices, but some consumer groups and large energy companies have Disasters waiting to happen in the industry And it required a scrutiny by regulators of the supplier’s business model.
No households remain without energy supply as a result of the crisis, but consumers are expected to end up in a collective tab It’s approaching £ 1 billion. The cost of picking up customers from a failed business, if not more, can be spread across all invoices.
In an interview with the Financial Times, Nolan believed the crisis was caused by the extreme rise in wholesale electricity and gas prices in recent months, and some companies “gambling” and “this price increase does not occur.” I am in a very dangerous position. ” “.
“There is absolutely a legitimate question as to whether Ofgem should have acted earlier to stop this,” said Nolan, now director of consultancy Fingleton.
“In a sense, perhaps in the wake of hindsight, I think I might have been looking for stronger licensing terms before,” Nolan said. “Intrusive” regulation Given that, as some commentators suggest, in the UK banking sector, the failure of an energy supplier does not necessarily pose a risk to the entire system.
Nolan revealed that he wasn’t speaking on behalf of regulators, but the recent market collapse gave him a cause of “reflection.”
Ofgem introduced in 2019 Tighter rules For new suppliers entering the market, they needed to prove that they had enough money to trade for a year, and directors needed to elaborate on past criminal convictions and business failures.Regulators earlier this year Rules for strengthening existing businesses..
However, analysts and those remaining in the market have criticized the rules for being too late to scrutinize whether some companies could withstand the price shocks in the wholesale market. had.
“The current turmoil in the energy market only increases the need for stronger regulations to protect consumers,” said Gillian Cooper, energy policy director for non-governmental public counseling and counseling on Monday. “.
In July, British Gas owner Centrica’s CEO Chis Ossia suspected that some suppliers “must trade while bankrupt” and others financially. He warned that he was using his clients’ funds to fulfill his obligations.
It has also been scrutinized over the last few weeks on how much money some supplier owners have. Withdrawal from their business While they are accumulating large losses.
Some small suppliers have also blamed market turmoil on the annual energy price cap introduced by Ofgem in 2019 at the request of the Theresa May government.
“I wasn’t thinking about the situation where the price cap was the cheapest on the market,” Nolan said. The cap is now about £ 550 below the cost of buying energy in the wholesale household market. But he argued that the policy was not due to the current turmoil, but to the business model of some suppliers and soaring wholesale prices.
Number of suppliers in the UK market during Nolan’s tenure Inflated From about 24 at the end of 2013 to more than 70 peaks in 2018, new entrants have the opportunity to ride the declining wholesale market in 2015-16 and cut down on large existing companies with high cost bases and outdated technology. I saw.
“Overall, I think competition has brought lower costs to consumers,” Nolan added. “When it comes to service, it’s mixed. You got some very poor service from new entrants, but you also got very good service from some new entrants.”
Ofgem declined to comment.
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