The Department for Energy Security and Net Zero (DESNZ) has launched the first comprehensive review of the UK’s energy regulator, Ofgem.
A call for evidence has been made as the first step of the process, inviting input from energy users, consumer groups and the industry on areas including Ofgem’s remit, standards and tools.
Ofgem is responsible for working with government, industry and consumer groups to deliver net zero at the lowest cost to consumers, prevent and punish bad practice and ensure fair treatment to all customers and enable competition and innovation in the energy market.
During the third reading of the Energy Security Bill in the House of Lords in April, an amendment passed to give Ofgem a statutory duty to assist in the delivery of net zero. It is an independent firm, but operates within a statutory framework established by parliament to establish its duties and powers.
The possible changes will modernise the regulator’s abilities in line with the changing energy market and ensure that consumers’ rights are properly protected.
In November, for example, Ofgem confirmed that home energy supplier E.ON Next, part of the E.ON Energy Group, would pay customers affected by E.ON Next’s failure to provide final bills and refund customer credit balances to prepayment meter customers.
The government’s Clean Power 2030 Action Plan commits it to working with the National Energy System Operator (NESO) to work together to reform the grid connection queue, plans for which NESO has begun to set out.
Proposed new measures to enhance Ofgem’s consumer protection powers will include shortening the eight-week response time for complaints and strengthening the energy ombudsman. The review will also consider its role in approving new infrastructure projects and improving the connections process.
The government has also said it will consider strengthening and expanding automatic compensation, which would mean that when something went wrong with a supplier, consumers would have quicker and easier access to redress.
DESNZ said households have been left to feel the effect of the country’s “broken energy market” through high bills, supplier collapse and poor customer service. During the 2022 energy crisis, DESNZ says it became clear that Ofgem is no longer fully equipped to protect consumers in today’s market.
Energy UK’s chief executive Dhara Vyas said: “At the height of the energy crisis, most suppliers faced record-breaking numbers of customer calls, highlighting the immense pressure on the sector. While we’ve seen encouraging improvements in customer satisfaction scores more recently, the market’s instability has resulted in suppliers making collective losses of around £4 billion over the past four years.
“To attract the investment needed for innovation and to deliver the products and services households and businesses require for net zero, we need a regulatory framework that supports growth and stability – while ensuring continued improvements in customer service.”
Ofgem welcomes the review
The review is intended to ensure Ofgem can address bad practice by suppliers, such as the forced installation of pre-payment meters and taking too long to refund excess credit or correct billing errors, and will essentially see it afforded more powers.
It will also consider how Ofgem can better support the government’s clean power mission by encouraging private sector investment and ensuring households looking to install clean energy technologies at home are protected by “robust and responsive” regulation.
Ofgem’s RIIO-3 framework offers network companies incentives for innovation and securing investment so that they can develop sustainable energy networks at the lowest cost for current and future customers.
Networks submit their plans for investment and upgrades to the regulator for approval. Ofgem’s Accelerated Strategic Transmission Investment (ASTI) mechanism, which recently saw £2 billion funding awarded to the Eastern Greenlink 2 project, is another way that the regulator ensures that network infrastructure does not slow the energy transition
Minister for energy consumers Miatta Fahnbulleh said the Ofgem review would set the regulator up for the transition to net zero and “establish it as a champion for households and businesses by fixing the broken energy market and putting consumers first”.
Jonathan Brearley, Ofgem CEO, added: “Ofgem welcomes this review. A great deal has changed since our remit was set 25 years ago, and will continue to change as we move to new ways of generating and using energy.
“The energy crisis served as an important reminder to all that protecting consumers must remain the focus no matter what challenges we face, so that every household receives the service and support they rightly expect.”
