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Is Ofgem “failing consumers”?

Five questions answered on MPs criticism of Ofgem.

Ofgem has been criticised. Photograph: Getty Images

A group of MPs have come forward and said energy regulator Ofgem is “failing consumers”. We answer five questions on the MPs’ problem with Ofgem.

What exactly has Ofgem been criticised for and by whom?

 The Energy and Climate Change Committee (ECCC) has written a report saying that the watchdog was "failing consumers by not taking all possible steps to improve openness".

They added that greater transparency over the profits made by the big six energy (E.On, SSE, British Gas, Npower, EDF and Scottish Power) companies is needed.

"Greater transparency is urgently needed to reassure consumers that high energy prices are not fuelling excessive profits," the committee said.
Adding that Ofgem had not fully implemented the recommendations of the accountants it commissioned to improve how energy companies report their profits.

What have Ofgem said?

Ofgem has responded by saying it made companies produce yearly financial statements, which they had then been reviewed by accountants.

"Ofgem has made energy companies produce yearly financial statements, which have been reviewed twice by independent accountants and found to be fit for purpose," Ofgem's senior partner for markets, Rachel Fletcher, told the BBC.

However, Ofgem did admit that energy companies have been poor when it comes to communicating with customers.

So, what’s the problem with this?

The committee say forensic accountants are needed to properly understand these accounts and work out the correct profit, because the companies have different divisions to deal with different functions of their business and these often buy and sell services and energy from each other. This makes it difficult to determine how much profit is actually being made.

"Ofgem needs to use its teeth a bit more and force the energy companies to do everything they can to prove that they are squeaky clean when it comes to making and reporting their profits," said committee member John Robertson.

What have the independent experts said?

"We want the government to introduce simple energy pricing and a clear ring-fence between generation and supply businesses, so consumers can see exactly what they're paying for and be more confident that there is effective competition in the energy market," Which? executive director Richard Lloyd told the BBC.  

Angela Knight, the chief executive of Energy UK, a body which represents energy companies, said she thinks companies have come a long way on transparency.

"Energy companies all publish annual accounts and, in addition, both the generation and supply parts of the business provide Ofgem with all the information about revenues, costs and profits for which the regulator asks," she told the BBC.

What else did the committee say?

They also reprimanded the government for not helping poorer families with their energy bills more. Adding that using levies on fuel bills to raise funds for social and environmental programmes may end up hitting those on low incomes.