Ofgem has failed, the government’s asleep and we are paying for it

According to Ofgem, their role is to protect energy consumers, especially vulnerable people, by ensuring they are treated fairly. Today, they failed in this role. Utterly and completely. Hot off the heels of a 54% price rise last month, Ofgem have, astonishingly, set out a roadmap that will make a bad situation worse. Their actions today show absolutely no regard for the general public. It can only be described as a catastrophic regulatory break down and everyone involved in this decision should be held to account.

To paraphrase Martin Lewis, the package of measures announced by Ofgem is fucking disgraceful. And he is right. It is an absolute disgrace, and it is not hyperbole to say that people will die as a result. The government also have a lot to answer for and is not doing anywhere near enough to resolve this. It is clear that the Government and the regulator are not working together here.

What have Ofgem actually announced?

First and foremost, nothing is set in stone yet. Their announcement today is that they are initiating a consultation. This covers two changes that will have a big impact on the market:

1. Price cap changes will move from 2x to 4x per year
2. Reduce the notice given of price changes to 25 working days

This will have a few impacts. The first is that energy companies will be able to increase prices far more frequently. In theory, the regulator argues, this will also mean that they can reduce them quickly as well. But this seems like an unlikely prospect. This whole change has been put in place to prop up the energy companies. In practice it is highly likely to lead to more frequent price rises.

The second impact of this change is that there will now be a price rise in the middle of winter. Historically, price rises would happen at the start and end of the busy usage period (April and October). This gives consumers certainty during the time when they use the most energy. This is particularly important for vulnerable groups, like the elderly. The new sequencing will make budgeting almost impossible for these groups, with fatal results.

Finally, this change isn’t happening in a vacuum. Back in February Ofgem introduced something called the “Market Stabilisation Charge“. When consumers switch, the new supplier will pay this fee to the old provider if wholesale energy prices have fallen significantly. This has been criticised by industry insiders as favouring the established suppliers. Coupled with quarterly price rises, the MSC will almost certainly create a ratchet effect dispelling any notion that “prices will fall quickly”.

Use your voice – tell Ofgem what you think!

You can review the full consultation here and can take part by emailing pricecapchanges@ofgem.gov.uk but be warned it is long and full of jargon like “backwardation”. If you are as outraged as I am about this, please take part in the consultation – you have until Tuesday 14th June. If you want some inspiration, I’ve included some sample text:

Dear Mr. Dan Norton,

I am writing in response to the public consultation initiated on 16th May 2022, relating to a move to quarterly Price Cap rises. I would like to express in the strongest possible terms my opposition to this move. The assertion that this will enable prices to fall as quickly as they rise completely ignores the real challenges that people are facing in the short term.

In practice, moving to a quarterly methodology will make it impossible for the most vulnerable to budget. This will put lives at risk, as it will create a situation where prices are likely to rise in the middle of Winter. Anything that discourages vulnerable groups from using the energy that they need must be treated with the utmost caution.

Second, this consultation does nothing to help consumers. Given the enormous strain on household finances, I find it astonishing that no measures have been put forward to ask the energy companies to pick up more of their fair share. Particularly given the Market Stablisation Charge that the large incumbents are set to enjoy. This also comes at a time when standing charges are at a record high, which creates an enormous burden on single person households.

To close, I would like to remind you of your stated purpose. I quote:

“Ofgem is Great Britain’s independent energy regulator. We work to protect energy consumers, especially vulnerable people, by ensuring they are treated fairly…”

This whole consultation reads as if it was written by energy companies, for energy companies. I understand the concerns around energy companies going under, but consumers cannot pick up the bill indefinitely. If you are serious about this move helping consumers, then I would propose that you add a rule. If this proposal were to state that the price cap can only rise twice per year in April and October, but can be reduced quarterly then I believe it would show you are serious about your stated purpose

Regards,

[Your Name]

Sample Response to Ofgem’s Consultation

What is the Government doing about this?

Pretty much nothing.

Their “loan-not-a-loan” doesn’t even scratch the surface. Despite the £200 being “not-loaned”, energy prices have already risen by 54% and are set to rise again in October. I have not yet seen anyone from the Government comment on Ofgem’s plans. This despite the fact that Ministers have previously praised the twice yearly mechanism. It seems unlikely that Ofgem would have proceeded without government involvement. Surely any price rise would be viewed as a matter of last resort?

Their council tax scheme does not do much better. This time it actually is a rebate (of £150) and is available for everyone in Council Tax Band A – D. But no matter what Michael Gove says (or what accent he says it in) this hardly touches the sides. £150 off a ~£650 average rise covers less than 25% of the cost. Also, using council tax bands penalises larger families, who are likely to be hardest hit by the price rises.

The government has also point blank refused to put in place a windfall tax. The fact that consumers are being asked to prop up an industry that is generating enormous profits is ludicrous. Actually, it’s a fucking disgrace.