Financial regulation of energy firms must be 'significantly enhanced' say Ofgem

Financial regulation of energy firms needs to be “significantly enhanced”, according to the sector’s watchdog.

It comes as households across the UK struggle with the cost of living, as bills and retail prices soar.

MSPs heard evidence from Ofgem bosses at the Scottish Parliament on Tuesday.

Neil Lawrence, the regulator’s director of retail, acknowledged that companies were “not resilient enough” to respond to the volatility in the sector.

And he said that many firms could not cope with the sustained price shock, with 28 suppliers going out of business since August last year.

Lawrence was speaking at Holyrood’s Net Zero, Energy and Transport Committee.

“We know that many consumers in Scotland and across Great Britain are finding the cost of living increases very tough at the moment,” he told MSPs.

“I spend a great deal of time with consumer groups, charities and customers and I’m really aware of the pressure that everybody is under.

“Wholesale gas prices across Europe and Asia have been extraordinarily volatile and have risen to unprecedented levels over the past year, and that’s put the global energy market under severe pressure.

“As a consequence of this in Great Britain, we’ve seen a significant rise in consumer bills, with the price cap increasing by almost £700 in April for approximately 22 million customers with a further price rise expecting this October.

“Many suppliers simply could not cope with such a sustained price shock with 28 suppliers exiting the market since last August.”

Lawrence indicated that the energy price cap should also be “more adaptable” to rapidly changing market conditions.

The cap rose by £693 from April 1 this year for around 22 million consumers in the UK.

“We need a retail market that is more robust to this volatility in the future,” said Lawrence.

“There are therefore two very important changes that we’re making to our regulatory framework.

“Firstly, companies were not resilient enough and financial regulation needs to be significantly enhanced.

“We’re already implementing tougher and tighter financial regulation with greater oversight in the retail market.

“And secondly, the price cap, although protecting those consumers from those unfair price rises, needs to be more adaptable to rapidly changing market conditions.

“And we’re therefore reforming the price cap to make it more flexible, while still retaining the benefits of protection for consumers.”

The Ofgem boss admitted that there are lessons to be learned from the cost of living crisis.

He added: “In all of this, our priority has been and remains to act in the best interest of energy consumers.

“And we accept that there are lessons that need to be and have been learned from this crisis.”