By Susanna Twidale
LONDON (Reuters) - The approach of Britain’s energy regulator to awarding new supply licences and monitoring companies increased the risk of firms failing and contributed to higher energy costs for struggling households, a parliamentary watchdog said on Wednesday.
Some 28 British energy suppliers have collapsed since June last year, squeezed by record high wholesale energy prices and the price cap set by the regulator, Ofgem, preventing them from passing on costs to customers.
While Ofgem could do nothing about the soaring wholesale prices, its actions increased the risk and cost of companies failing, the National Audit Office (NAO) said in a report.
“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,” Gareth Davies, the head of the NAO said in a statement.
Companies taking on customers from suppliers that have gone bust are able to recoup their costs through Ofgem’s supplier of last resort system.
These costs are then spread across all energy customer bills, contributing to an increase in the price cap, which rose 54% in April.
Ofgem estimates the total cost to consumers of failed companies is around 2.7 billion pounds ($3.3 billion) or 94 pounds per customer.
The figure excludes the cost of placing the largest supplier to collapse, Bulb, in Ofgem's Special Administration Regime, which could add up to 1.7 billion pounds to the total costs.
The report said, however, the regulator has been successful in transferring almost 2.4 million customers to new suppliers without their energy supplies being disrupted.
Ofgem has this year announced plans to update the price cap more frequently to better reflect wholesale prices, and said it has toughened financial checks for new entrants joining the market.
($1 = 0.8160 pounds)
(Reporting By Susanna Twidale; Editing by Tomasz Janowski)