By Greg Marsh
Energy companies keep posting record profits, but its the regulator Ofgem which has allowed the suppliers to add more money to bills, writes Greg Marsh
British Gas – a private company, remember, that exists solely in order to make money – posted record profits last week. The UK’s largest household energy supplier raked in £969m in the first half of 2023, compared to £98m in the same period last year.
Terrific news for Centrica shareholders who got roughly half a billion quid richer. Less palatable for its 12 million customers. A typical family has seen its bills double in the last three years, and 1 in 5 households are in fuel poverty – meaning they literally can’t afford energy bills without giving up other essentials.
Therapeutic though it may be to decry British Gas, most of their bumper profits were not down to corporate avarice but rather to the actions of Ofgem. By focusing on the easy target, we risk overlooking the true culprit lurking in the shadows.
No sooner had Covid-19 ended than the war in Ukraine caused wholesale unit costs to soar. Ofgem’s price cap meant energy suppliers operated at a loss. Many minnows failed as a result, and those that survived lobbied hard for support, threatening to leave the pitch altogether. Ofgem’s response was to increase the energy price cap on a “one-off” basis. British Gas by its own admission pocketed £500m as a result.
But when does seeking to ensure market stability tip over into pandering? Suppliers will naturally posture when times are tough. A wise regulator, acting in consumers’ interests, must decide when to call their bluff.
Ofgem’s inadequacies aren’t news. During the energy crisis we learned it had failed to police cowboys. Some, like Avro, were using customer deposits as working capital. Others, like Bulb, were woefully under-hedged and under-capitalised. When wholesale prices spiked, the tide went out and many suppliers were indeed swimming naked.
MPs acknowledged as much in a damning select committee report last year. “Ofgem has proved incompetent…over the last decade. It allowed suppliers to enter the market without ensuring they had access to sufficient capital, acceptable business plans, and were run by individuals with relevant expertise.” According to parliament’s Public Accounts Committee, Ofgem’s poor oversight added an extra £94 to every household’s fuel bill.
We saw more of Ofgem’s true colours in May this year. Alongside its announcement of the July price cap, Ofgem revealed it had capitulated to industry lobbying by permitting energy companies to make even more money at households’ expense.
Under the plans, the element of the price cap that covers profit margin (EBIT) will increase from October from 1.9 per cent to 2.4 per cent. Knowing full well how bad this looks (and possibly how misguided it was), Ofgem tried to hide it. The fact this will add £227m to UK household bills was buried on page 88 of an obscure consultation document. Were it not for my colleague’s eagle eyes, we might have missed it altogether. It shouldn’t depend on attentive activists to police a regulator whose core mission it is to look out for consumers’ interests.
Then in March, when The Times exposed how British Gas was forcibly installing prepayment meters, Ofgem tried to compel the journalist to reveal his sources rather than going after the baddie. It all adds up to a picture of a craven regulator, cowed by criticism, far too close to the industry it’s meant to regulate.
When 6 million UK households simply cannot afford to pay their energy bills, when complaints to the energy ombudsman are at a record high, and when price competition – the much-vaunted reason for privatising the market in the first place – has all-but evaporated, we need a competent regulator with teeth. We need one that robustly acts in the interests of hard-up householders. Instead, Ofgem is quietly lining the pockets of suppliers.
