Household energy bills to rise by £94 to cover costs of collapsed suppliers

Every household's fuel bill will rise by £94 to cover the costs of collapsed energy suppliers, a damning report has found.

The National Audit Office (NAO) said that, while the failures of 28 firms were caused by massive changes in the energy market, regulator Ofgem was partly to blame.

It found that Ofgem's approach to how it licensed and monitored suppliers over the last decade increased the risk of them failing, but also added to costs when they did.

Households will have to pay an extra £2,7bn in total, £94 per bill, to pay for the transfer of 2.4 million customers to a new supplier.

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Head of the NAO Gareth Davies said: “By allowing so many suppliers with weak finances to enter the market, and by failing to imagine that there could be a long period of volatility in energy prices, Ofgem allowed a market to develop that was vulnerable to large-scale shocks.

“Consumers have borne the brunt of supplier failures at a time when many households are already under significant financial strain, having seen their bills go up to record levels.

“A supplier market must be developed that truly works for consumers.”

Ofgem’s processes have been good at ensuring that households do not have their energy cut off when a supplier fails.

It fixes this through the so-called supplier of last resort system which asks a rival company to take over the supply of energy to those households.

But the system has many potential pitfalls. For instance, customers will often be moved to a more expensive deal with their new supplier – Citizens Advice estimates it adds about £30 per month to bills for the average customer.

Some customers will also be taken off their debt-repayment plans, which hits the most vulnerable hardest.

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In 2019, Ofgem and the government introduced the price cap on energy bills, which meant customers were often being charged less for their gas than the energy suppliers had to pay for it.

But before the end of last year, more than two dozen suppliers had collapsed as failures in the energy market emerged.

In April, to account for the price rises, Ofgem increased the energy price cap to £1,971.

It then announced the cap was expected to increase by a further £830 to £2,800 in October, and with inflation also being at a record level of 9.1% the cost of living crisis continues to impact households in the UK.

Ofgem said it accepted the NAO’s findings and is working to fix the problems raised.

It added: “While the once-in-a-generation global energy price shock would have resulted in market exits under any regulatory framework, we’ve already been clear that suppliers and Ofgem’s financial resilience regime were not robust enough.

“While no regulator can, or should, guarantee companies will not fail in the future, we will continue to take a whole-market approach to further strengthen the regulatory regime, ensuring a fair and robust market for consumers which keeps costs fair as we move away from fossil fuels and towards affordable, green, home-grown energy.”