The chief executive of Ofgem has said controls on energy companies entering the market “should have been tighter” before more than two dozen went bust.
Jonathan Brearley has also said the previous system of having the price cap reassessed every six months, which has since been changed to three months, meant some firms were unable to increase costs to prevent them from going under.
Since the beginning of last August, 28 energy suppliers have failed amid soaring gas prices, causing turmoil for more than four million customers.
Speaking to MPs sitting on the Public Accounts Committee on Monday, Brearley said: “The problem was the ongoing requirements for the suppliers themselves and we accept, with hindsight, they should have been tighter.
“When we looked at supplier failure prior to September of this year, although there have been costs, they weren’t anywhere near the order magnitude of what we’ve seen.
“But the fact is what we had was this huge rise in wholesale prices, which did two things; it increased the number of suppliers that failed but also increased the costs of their failure.
“Now, you know, we accept that looking back, financial resilience controls could have been stronger and should have been stronger, and equally the design of the price cap should have allowed the market to adapt more freely.”
He later told the committee there were currently 26 domestic suppliers, but could not rule out more going bust.
Brearley said: “We’re not out of this yet, so this is not a sort of retrospective look at last winter, we are still in this change and we have all our sort of enforcement and procedures ready and in place but it is still a challenging market so it’s quite possible we see further exits.”
A report by the National Audit Office, published in June 2022, said that, while the failures were caused by massive changes in the energy market, Ofgem is also partly to blame.
The watchdog’s approach to how it licensed and monitored suppliers over much of the last decade increased the risk of them failing, but also added to costs when they did, the NAO found.