Market with less switching may need tougher regulation

Ofgem may need to introduce “tougher” regulation to safeguard customers in a market where there can be less reliance on switching to drive down prices, Jonathan Brearley has told MPs.

Under grilling by the House of Commons Business, Energy and Industrial Strategy Committee, the Ofgem chief executive also said the regulator should be able demand redress from bosses of suppliers that go bust.

Even before the recent surge in wholesale gas prices, which fuelled the 54% increase in the energy price cap announced last week, nearly half of energy customers were not actively engaging with the market by switching suppliers, Brearley said: “Now we are in a more volatile market, we need a retail sector that is tougher and more resilient. We accept that had we done that earlier, this would have been better for customers.

“A large number of people are not switching. When we look at the future of retail regulation and driving up customer service standards, we may have to accept that as more of a reality and therefore think differently about how the other things customers want are implemented.

“If there is less reliance on switching as the only way of driving up performance and managing price, we will need a different form of regulation.

“Switching played a substantial part but we need to look more broadly at how we regulate the retail sector to make sure customers can get out of it what they need.

“We need to think harder about how to regulate that part of the market that doesn’t shift.”

He said while it is “quite possible” that the price cap could be removed, the market will need to “change quite considerably” first.

Brearley also said Ofgem should have redress against directors of suppliers, who pay themselves large sums, if their companies go bust after charging low prices to lure in customers.

“We don’t have redress in those circumstances: I think we should.”

And he said the regulator should have a “closer” relationship with retailers, more like the one with networks.

While the mid-2010s had seen a “shared ambition” by the government and Ofgem to encourage smaller suppliers to enter the market, Brearley said the regulator accepted that it should have taken a “tougher” approach to regulating the market in recent years.

Stephen Fitzpatrick, Ovo group chief executive and founder, welcomed Brearley’s backing for Ofgem seeking redress from the directors of failed suppliers.

“There has been a lot of arbitrage opportunities to effectively gamble with consumers’ money. Where there has been inappropriate behaviour, absolutely right, there should be redress.

“Relations with government and the regulator have become very difficult so we welcome a reset.”

The cost of living crisis and how utilities can respond to it will be a key part of the debate at Utility Week’s Customer Summit on 16 & 17 March. Find out more here.