The Good Law Project has threatened Ofgem with court action should it fail to comply with its legal duties to protect vulnerable customers amid plans to raise the energy price cap.
Good Law Project, along with Fuel Poverty Action and Dion Alexander, the chair of the Highlands & Islands Housing Associations Affordable Warmth Group, believe Ofgem has “neglected” vulnerable customers amid an unprecedented cost-of-living crisis. The non-profit organisation claims “35 million people are under threat of fuel poverty in the coming months”.
This comes as another blow to the energy regulator who was recently deemed “incompetent as the regulatory authority” according to a new report from the Department of Business, Energy and Industrial Strategy (BEIS) select committee.
The open letter from the political non-profit to the regulator claims the organisation has failed to conduct proper impact assessments or consider appropriate mitigation measures before raising the energy price cap, which could see an average household energy bill increase to a predicted £3,582 in October.
This is a 180% increase from this time last year and could increase further with research from Cornwall Insight suggesting it will grow further to £4,266 for Q1 2023. Alongside this, its prediction for upcoming price cap period will see households pay an expected £4,266 a year for the three months to March 2022.
“This is an urgent wake-up call for Ofgem who are clearly failing in their self-proclaimed “duty to ensure fair treatment for all consumers, especially the vulnerable”, said Dion Alexander chair of the Highlands & Islands Housing Associations Affordable Warmth Group.
“Why is Ofgem discriminating so unfairly between off-gas and dual-fuel households? Gas costs 7p a unit and electricity 28p a unit, but 15 percent of all UK consumers can’t get mains gas and can’t escape having to pay so much more than even their hard-pressed dual-fuel counterparts for exactly the same level of energy consumption. It’s manifestly unfair and it’s the vulnerable who bear the brunt.
“That’s why they at least need the protection of a manageable ‘social tariff’, set at the same price per unit for both gas and electricity.”
In response, a spokesperson from Ofgem told Current±: that it had received the letter and planned to reply in due course.
“Ofgem’s priority is to protect consumers and we know that people are currently under huge pressure as bills continue to rise,” the statement continued.
“We will keep working closely with the Government, consumer groups and with energy companies on what further support can be provided to help with these higher prices.”
The price cap and it ability to protect both customers and suppliers has been a point of contention, with concern growing that millions of households will be pushed into fuel poverty as it rises.
At the beginning of August, Ofgem announced it was to start setting the price cap quarterly, and emphasised that the price cap had to rise to reflect wholesale costs and help supplier avoid collapsing, but that it limited their profit to 1.9%.
“I know this situation is deeply worrying for many people,” said Jonathan Brearley, CEO of Ofgem, at the time.
“As a result of Russia’s actions, the volatility in the energy markets we experienced last winter has lasted much longer, with much higher prices than ever before. And that means the cost of supplying electricity and gas to homes has increased considerably.
“The trade-offs we need to make on behalf of consumers are extremely difficult and there are simply no easy answers right now.”
Increasing the price cap should prevent further companies from going bust, after 29 folded between July 2021 and May 2022 as wholesale prices surged but suppliers were unable to recoup the costs in the short-term from their customers through bills due to the price cap.
Catering for a heavily strained energy market
Ofgem is attempting to regulate an energy market against this backdrop of record high wholesale energy prices, driven by a gas crisis that has been exacerbated by the Russian invasion of Ukraine.
Through the Supplier of Last Resort (SoLR) mechanism, 2.4 million customers from 28 collapsed suppliers have been placed with a new company. This has been expected to add £2.7 billion (£96 per customer) to energy bills.
By preventing further energy suppliers from going bust, it could be argued that Ofgem is acting in the interests of both customers and suppliers. If further suppliers went into the SoLR mechanism, it could have severe repercussions on the UK’s supplier market and raise energy bills still further.
Should a supplier be too large for the SoLR scheme, it then gets put into the Special Administration Regime. This happened to Bulb, the seventh largest supplier in Britain, late last year.
Currently, the continued support of Bulb is expected to cost at least £2 billion. Whilst some of this cost will be recovered through the sale of the company, remaining costs are to be recovered through a levy on energy bills – against increasing bills already surging due to gas prices.
Increasing industry pressure
The Good Law Project continues its momentum off the back of a successful legal case against the UK Government and its “unlawful” net zero strategy, casting its eyes to the ongoing energy price cap increase within the energy sector.
Action brought by Good Law Project, Client Earth, Friends of the Earth and climate campaigner Joanna Wheatley claimed that the government had acted unlawfully because its own net zero strategy, unveiled by the BEIS last year, does not comply with the legal requirement set out within the Climate Change Act.
And in a judgement and order, the High Court upheld those claims, ruling that government proposals for meeting net zero were too vague to offer certainty that statutory targets would be met.
This track record could increase the pressure on Ofgem to showcase its regulation of the industry which has been deemed as inadequate.
“Ofgem are failing in their duty to protect those most vulnerable in our societies from the horrors of living in fuel poverty,” said Fuel Poverty Action.
“The price cap is one aspect of a failing energy system that is no longer fit for purpose and its meteoric rise is pushing millions into fuel poverty. Ofgem must stop acting in the interest of the energy suppliers and the fossil fuel industry, and begin to understand the life threatening conditions they are imposing on people this winter.”