20 Sep 2021

High wholesale gas prices ‘will feed through ultimately to customers’ bills’, Ofgem CEO says

Jonathan Brearley is chief executive of the UK’s energy market regulator Ofgem – the Office of Gas and Electricity Markets.

He spoke to Channel 4 News as the wholesale price of gas soars, putting energy providers at risk of collapsing and leaving consumers facing the prospect of higher bills. 

We started by asking if the energy market had allowed in too many unsustainable businesses which didn’t know what they were doing.

Jonathan Brearley (JB): The main reason why we’re in this situation is an unprecedented rise in gas prices. We’ve seen wholesale costs go almost four times their normal level over the last few months. That’s putting every company in the market under strain, even the most resilient.

Krishnan Guru-Murthy (KGM): But it’s clear that a lot of companies came into the market that just weren’t resilient. You’re the regulator. Is it your job to stop that happening?

JB: Our job is to make sure that customers are looked after and in any market suppliers do exit, so companies do exit the market. Over the years, when you look back, there have been other companies that have failed. So if you go back a few years ago, Ofgem is always making sure that customers are looked after in those situations.

KGM: The government is very confident that the lights aren’t going to go out. That customers shouldn’t be panicking. Are you as confident about that?

JB: We have one of the most secure and resilient systems in the world, and we have access to a very diverse range of sources of gas. So we are confident that there is access to gas over the course of this winter (and into) the next year. Ultimately, what we’re talking about is the cost of that gas. Almost two-thirds of the whole gas we use in this country has been taken out of the market this year, and that’s driven up the price and that’s why some companies are feeling the strain.

KGM: Is the energy market working, in your view, is the market functioning?

JB: So the market has functioned well for customers and customers have been looked after throughout that time and of course, in any market, companies are going to exit. Ofgem and the government have systems and processes in place to make sure that customers are looked after as companies exit the market. We will be using those to make sure we manage the situation we’re facing. When you see the gas price rise by almost four times, of course that’s going to put strain on the market. But Ofgem and the government have a plan in place, and that’s what we’ll be publishing. What we want to do is to make sure we have a resilient market where companies can function and can compete. Remember, that doesn’t just mean focussing on the big companies. That means having a diverse set of companies that really can compete not only on costs, but on the offer they make to their customers.

KGM: Hasn’t this shown that that’s just impossible? We’re not going to end up with a really diverse set of large, medium sized and small companies because all the small ones are going to go bust.

JB: The plan we’re putting in place is not about backing failing companies. The plan we’re putting in place is making sure that we support our customers through this transition.

KGM: Is the energy price cap too low?

JB: No we don’t think the price cap’s too low. It does protect customers, it does make sure that customers are protected from the price spikes we’re seeing and it has delivered huge benefits for customers over time. But of course, that price cap will change and adapt as these wholesale costs change.

KGM: It is going up in the next few days. Are you expecting it to go up again next year?

JB: It’s really too early to tell, but of course, with the high wholesale prices we are seeing they will feed through ultimately to customer bills.

KGM: There are quite a lot of consumers who are getting worrying letters saying “your business is going bust” and they are now worried that their bills are going to go up. What happens if they can’t afford those bills when they go up?

JB: We say to any customer that is struggling to pay their bills or worried about their bills, please do get in touch with your supplier and make sure you get access to all the help and support that’s available. There was a huge range of things that the companies themselves do in government and Ofgem have put in place to make sure you do get help. To give you one example, there’s something called the warm home discount that gives you a £140 discount on your energy bill. We know from all the charities we work with that many customers actually don’t know about it and don’t get access to it. So please do get this help and support you need if you’re worried about your bills.

KGM: Kwasi Kwarteng tweeted today that the government is in some way going to become the supplier of last resort. That’s presumably if the existing gas companies don’t want to take on all these customers from failed companies. How is that going to work? Is it going to set up a new nationalised gas company?

JB: No. First of all, the supplier of last resort is really about taking a group of customers from a company that’s exited the market and transferring them to a company that remains in the market. So it’s a scheme really to put customers into a company that is still there. I don’t see that as nationalisation.

KGM: Is the bottom line that when the price goes up, either the government is going to have to pay or the consumer is going to have to pay?

JB: Ultimately, any costs of the underlying energy will feed through into customer bills. That is how our market works.

KGM: Is it the government’s fault then that the market hasn’t been planned for properly, that we don’t have the storage facilities, that we can’t plan our market in terms of what we’re buying?

JB: I come back to the point that this is an unprecedented change in international gas prices, this is a global change, and Britain isn’t the only country that is struggling with this. We also have other countries like Spain, even Japan, who are seeing huge changes in their market, of course you would, given the change in underlying costs. So we do have a market that is robust. We do have a process that will look after customers as we make this change. But ultimately, these changes are part of the system that we have and ultimately it will be reflected in the way we manage the market.