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Energy bosses could have their bonuses banned if they cause significant harm to consumers under reforms to strengthen regulatory powers, the Government has announced.
Ofgem is to be “transformed” to strengthen protection for consumers, making it able to enforce faster redress for households let down by their supplier, the Department for Energy Security and Net Zero (Desnz) said.
Executives will be “incentivised” to act in their customers’ best interests, with powers for Ofgem to ban their bonuses if they are found to have breached licence conditions in a way that has caused significant harm to consumers.
The reforms are the first major update to Ofgem’s scope since the regulator was founded in 2000.
The regulator has previously never had powers to hold executives individually accountable.
Ofgem’s stronger powers would allow it to enforce consumer law directly, meaning it would no longer need to go through lengthy court processes to ensure customers get back what they are owed if companies treat them unfairly.
The changes will involve removing Ofgem’s responsibility for oversight of home upgrade schemes in a role that is set to be performed within government by the Warm Homes Agency.
Desnz said the market had grown more complex since Ofgem was created, and now included a wider range of products and services, and growing numbers of customers in parts of the market which were covered by little, if any, regulation.
This included heating oil customers, who have seen prices spike during the conflict in the Middle East.
Energy Secretary Ed Miliband said: “This Government is fighting people’s corner, and today we set out steps to strengthen protections for energy consumers. This includes tough and fair measures to ban energy company bonuses if they break the rules.”
Minister for energy consumers Martin McCluskey said: “Every household must be given a fair deal, and today we transform our energy regulator to give families stronger protections.
“We’re giving Ofgem stronger powers to fight consumers’ corner, changing their remit so they can protect every consumer, and introducing new measures so they can hold energy executives to account.
“We’re making the market work for those who use it, working with the regulator to make sure customers are put first.
“We will continue to stand up for working people and fight their corner as we tackle the affordability crisis – our number one priority.”
Interim Ofgem chief executive Tim Jarvis said: “Great Britain’s energy system is going through the biggest changes in our lifetimes, and the regulator needs to be able to keep pace with that change.
“This review sets out ambitious, necessary reforms that will enable Ofgem to meet the challenges of regulating an increasingly electrified and flexible energy system and protect consumers so they can engage confidently in markets offering new products and services.
“We have delivered significant reforms in recent years, but this review enables us to make changes at a more systemic level to ensure we are delivering an energy system that works for consumers, that is attractive to investors and provides a stable, reliable environment for participants in the industry.
“With the tools, remit and clarity to deliver this, we look forward to working with the Government, consumer representatives and the energy sector to drive the change that’s needed – both in Ofgem and across the energy sector.”
Dhara Vyas, chief executive of Energy UK, which represents firms, said: “It’s disappointing that this review falls short of the radical reform that is necessary to create a more streamlined and focused regulator, better equipped to both protect consumers and foster an investable energy sector.
“The long-term answer is to tackle deep-rooted structural and cultural issues and move toward regulation that is focused on delivering investable, innovative energy markets that bolster growth and lower bills.
“This fundamental problem has little to do with insufficient powers, but rather how the regulator has chosen to use its powers in the past.
“Energy UK looks forward to working with Ofgem and the Government, to ensure that regulation enables stability, investment and growth across the energy sector, while playing an effective role in protecting customers.”
Citizens Advice director of energy Gillian Cooper said: “We welcome the actions set out in the review, which will strengthen consumer protections, enable a fair transition to green energy and give Ofgem the tools it needs to enforce the rules.
“Ofgem should now seize the opportunity to bring about a more innovative market, with better choices and protections for consumers, ensuring energy suppliers know there are real consequences for falling short.
“Effective regulation is one pillar which underpins a well-functioning energy system.
But consumers also need strong advocacy, trusted advice and the ability to get problems sorted quickly and fairly, so they can make informed decisions and know they won’t be left out of pocket if things go wrong.”
