Britain’s top energy boss has this weekend issued a stark warning that a fresh wave of gas and electricity suppliers could collapse this winter.
In an exclusive interview with the Mail on Sunday, Chris O’Shea, the chief executive of British Gas parent company Centrica, says he is ‘very worried’ of a repeat of the energy market mayhem of 2021 and 2022, when a string of firms went bust.
Bailing out the failed suppliers back then cost consumers £80 extra per household on energy bills.
The Centrica chief said he repeatedly warned watchdog Ofgem of the impending failures at that time but was ignored.
He fears at least one small supplier is at risk of going to the wall ‘imminently.’
In the aftermath of the previous crisis, regulator Ofgem introduced financial resilience tests and capital targets.
Concern: Chris O’Shea fears Ofgem has allowed the risks of another meltdown to build, despite having taken on large numbers of new staff and being handed an increase in its budget
These are meant to ensure providers have enough of a buffer to cope with volatile energy markets, so customers do not have to pick up the tab for future bailouts.
Ofgem has not publicly named companies that do not meet one or both of its new criteria.
However, auditors at Ovo, one of the ‘Big Six’ suppliers. recently raised a red flag in its accounts over whether it is able to continue as a going concern.
O’Shea fears Ofgem has allowed the risks of another meltdown to build, despite having taken on large numbers of new staff and being handed a big increase in its budget.
‘How can they have been taking so many extra staff, and seen their budget go up so much and they’re still making the same mistakes they did three or four years ago?’ he said. ‘There is a real risk it is happening again.’
‘I don’t want to say how worried I am on a scale from one to ten but I am very worried. I am worried enough to be, you know, making a point.’
‘I warned about this in the past and now I just see the same thing happening again. I just think it’s a crying shame and customers deserve better.’
Expansion: Ofgem’s permanent staff has doubled from just over 1,000 people in 2020/21 to more than 2,000
Ofgem’s permanent staff has doubled from just over 1,000 people in 2020/21 to more than 2,000. Its annual budget has soared from £131m to £290m over that period.
In 2021 and 2022 a number of suppliers went bust because they did not have sufficient capital to withstand the surge in energy prices caused by Russia’s invasion of Ukraine.
‘There was a failure of regulation and consumers picked up the tab,’ O’Shea said. ‘I wrote to the regulator three times before the energy market imploded telling them I was very concerned some suppliers were going to collapse. The regulator did not act on that. Did I get any response? No.’
‘It is a systemic risk to the energy retail market if companies are undercapitalised and you allow them to take on more customers.’
O’Shea welcomed the measures Ofgem has put in place but said it is not clear how effectively these are being applied.
He wants Ofgem to name publicly the companies that do not meet all its rules and targets.
In addition, he wants the watchdog to forbid them from taking on new customers and to force all firms to ‘ring-fence’ credit balances.
Centrica ring-fences customers’ cash and meets all the targets.
Octopus, the biggest supplier, is understood to meet the financial resilience rules and to have agreed a plan with Ofgem to meet the capital targets.
Ovo has agreed a plan to fulfil its requirements.
Industry body Energy UK last week savaged Ofgem for pushing up prices for the customers it is supposed to protect and called on Labour to dismantle the organisation.
A spokesman for Ofgem said its staff and budget have grown along with its expanded role and responsibilities and that consumer satisfaction ‘has recently improved to record highs.’
‘Suppliers now hold around £7.5billion in assets compared with heavy debts during the crisis.’
O’Shea said: ‘The energy market should be regulated like banks. The idea that a bank with inadequate capital would be out in the market and the regulators wouldn’t be telling people, it’s just for the birds,’ he said.
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