New rules for energy companies following billions spent on collapse of suppliers
The gas and electricity watchdog has announced a series of new rules for energy companies, including requiring firms to hold more capital, similar to the regulations placed on the banks in the wake of the financial crisis.
Ofgem has proposed the regulations to protect customers and make firms more resilient after a number of electricity suppliers went bust and cost taxpayers billions.
The collapse of electricity provider Bulb came after wholesale gas prices skyrocketed last year and left the company losing money on the energy they were contracted to sell to households and businesses at lower prices.
Its bailout is expected to be the biggest since the Royal Bank of Scotland was nationalised in the financial crisis and cost £6.5bn, according to forecasts from the Office of Budget Responsibility (OBR).
The Bulb insolvency is just one of dozens of smaller collapses which lead to criticism for the industry regulator Ofgem over how it allowed new energy companies in to the market.
Under the new rules announced on Friday, firms would be required to hold on to more cash or assets to reduce the risk of them going bust and reducing the cost and disruption if they do so.
Firms would also have to ringfence the money they needed to buy renewable energy in an effort to stamp out the misuse of customers’ credit balances, which will be closely monitored, Ofgem said.
The proposals have already come under fire from electricity suppliers, particularly the absence of a requirement for suppliers to ringfence all customer credit balances.
Customer money used to ‘fund day to day business activities’
British Gas owner Centrica issued stinging criticism for this omission and warned lessons have not been learned from the Bulb liquidation.
“When customers pay up front for their energy, they are trusting their supplier to look after their hard-earned money. They would be appalled to learn their money was being used to fund day to day business activities, but that’s exactly what’s happening in some companies, and it undermines confidence in the market,” Centrica chief executive Chris O’Shea said.
“We identified this as a major risk to consumers in 2016 – years before the energy crisis – and Ofgem promised to fix this.
“Energy companies must be adequately capitalised by their shareholders so that if they fail, the shareholders feel the pain, not UK consumers. It really is as simple as that, but it appears lessons have still not been learnt. This feels like an abdication of responsibility by a regulator not focusing on the right things. If and when a large supplier fails, the recklessness of the decision not to address this issue will be clear for all to see.”
Ofgem’s chief executive said there was a difficult balancing act to be done to ensure costumer protection while not placing undue restrictions on firms and hinder investment.
“These proposals will provide protections, checks and balances for consumers, suppliers and the entire sector to create a more stable market. We want suppliers to be able to be innovative and dynamic, while also making sure they are financially stable, and that customers’ money is protected,” Jonathan Brearley, Ofgem’s chief executive, said.
“This is a delicate balance and while Ofgem want well capitalised businesses that can weather price fluctuations, we also don’t want to block the market for new suppliers or force suppliers to sit on lots of capital they could be investing in innovative ideas.”
Feedback is being sought on the proposals and Ofgem expects reforms will be published by next spring.
Business
Ex-Post Office head of IT says Paula Vennells ‘hoped to avoid’ inquiry – and reveals she blocked her number
A former Post Office executive has said she was forced to block ex-boss Paula Vennells’ phone number after the ex-CEO called multiple times asking for help to avoid an independent inquiry into the Horizon IT scandal.
Lesley Sewell, previously the company’s head of IT, told the Post Office inquiry on Thursday that former CEO Ms Vennells had reached out to her four times between 2020 and 2021.
Ms Sewell said that she blocked Ms Vennells’ number due to discomfort with the contact.
In her witness statement to the probe, Ms Sewell said that one of Ms Vennells’ emails referenced the need to fill in memory gaps regarding Horizon and “Project Sparrow”, a committee addressing issues with forensic accountants who identified flaws in the accounting system.
“Paula contacted me on four occasions in total. I recall blocking her number after the last call as I did not feel comfortable with her contacting me,” Ms Sewell said.
“I had not spoken to Paula since I had left POL [Post Office Limited] in 2015.”
Lesley Sewell giving evidence to the Post Office inquiry. Pic: PA
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According to Ms Sewell’s testimony, former chief executive Ms Vennells said that she had “been asked at short notice” to appear before a parliamentary select committee on “all things Horizon/Sparrow and need to plug some memory gaps”.
Ms Sewell says Ms Vennells added: “My hope is this might help avoid an independent inquiry but to do so, I need to be well prepared.”
Ms Sewell, who struggled to contain her emotions and broke down in tears while giving her oath at the start of her inquiry evidence, was offered support and breaks as needed by chairman Sir Wyn Williams.
Sir Wyn told the former executive: “Ms Sewell, I appreciate this may be upsetting for you, Ms Price will ask you a number of questions in a proper and sensible manner, but if at any time you feel you need a break, just let me know, all right?”
Lesley Sewell taking the oath at the Post Office inquiry. Pic: PA
The Post Office has faced significant scrutiny following the ITV drama Mr Bates Vs The Post Office which highlighted the Horizon IT scandal.
The faulty system led to the prosecution of more than 700 sub-postmasters between 1999 and 2015, with many still awaiting full compensation despite government announcements regarding payouts for those with quashed convictions.
London City Airport will on Thursday name its first permanent female chief executive as it targets approval of an expansion plan that would create nearly 1,500 jobs.
Sky News understands that the Docklands airport has told staff that Alison FitzGerald, who has been co-CEO since January alongside finance chief Wilma Allan, has landed the role.
A woman wearing a face mask walks by London City Airport, which suspended its operations during the pandemic
She replaces Robert Sinclair, who left in January after six years to become boss of the High Speed 1 rail link.
The airport is owned by a consortium of Canadian pension funds and Kuwait’s sovereign wealth fund, which have backed a plan to increase its annual passenger traffic from about 6.5m to 9m.
It is appealing against Newham Council’s rejection of a planning application that would see it extend operating hours at the site, which is popular with City commuters.
The airport’s proposals include no increase in the annual number of flights and, in what it claims is a first for a UK airport, a commitment that only cleaner, quieter, new generation aircraft will be allowed to fly in any extended periods.
The runway at London City Airport
The appeal is being reviewed by the Independent Planning Inspector.
Its change of leadership makes London City the second of the capital’s airports to name a new CEO in quick succession, following the arrival at Heathrow of Thomas Woldbye last year.
“London City delivers one of the best passenger experiences in the UK and I’m committed to building on this success even further,” Ms FitzGerald said.
Representatives of Thames Water’s multinational syndicate of shareholders are poised to quit as directors of its corporate entities after refusing to inject the billions of pounds of funding required to bail it out.
Sky News has learnt that a number of board members at companies connected to Kemble Water Finance, Thames’s parent, are expected to resign in the coming days.
City sources described the move as “the logical next step” after the owners of Britain’s biggest water utility said they would not commit more than £3bn to help upgrade its ageing infrastructure and shore up its debt-laden balance sheet.
A default on part of Thames Water‘s holding company debts last month has raised the prospect that the company is heading towards special administration, a form of insolvency that would effectively leave the government liable for managing a utility firm which serves nearly a quarter of Britain’s population.
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Thames Water under threat
Thames Water is owned by a group of sovereign wealth funds and pension funds from countries including Abu Dhabi, Australia, Britain, Canada and China.
A number of the investors are represented on boards which sit at various points in the group’s labyrinthine capital structure.
It was unclear on Wednesday whether Michael McNicholas, a representative of the giant Canadian pension fund Omers and who sits on the board of Thames Water Utilities Limited, was among those in the process of stepping down.
Read more:
Directors hold crunch talks over utility’s future
Even bigger surge in bills proposed under new plans
Along with the rest of the privately owned water industry, Thames Water faces a crucial moment next month when Ofwat, the industry regulator, publishes its draft determination on companies’ five-year business plans.
The draft rulings will be subject to negotiation before final versions are published in December.
Thames Water and a spokesman for Kemble declined to comment.
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