Ofgem risks stifling innovation and preventing energy firms from making a profit in its attempts to clean up the industry, warned the boss of Utilita Energy.
Chief executive Bill Bullen told City A.M. the watchdog needs to “join the dots” between its various policies, slamming its decision to impose capital adequacy requirements while maintaining the restrictive energy price cap.
He argued Ofgem’s policies risk benefitting the biggest players in the industry ahead of challengers with creative propositions to offer to the market.
This could lead to challenger suppliers being squeezed out of the industry.
Bullen said: “This latest round of capital adequacy just doesn’t chime with the price capping regime that they’ve put in place unless of course you’re Centrica or EON or Scottish Power or EDF. These are massive energy companies. They are coming up with a set of rules in which only the massive ones can survive.”
The energy boss noted that the latest market data suggest firms were making a loss of one per cent across their customer bases, on average, even though the price cap was supposed to allow up to 1.9 per cent of profit within its margins.
He explained: “I don’t see how what we’re doing now is going to encourage innovation or enable it because there’s no profit margin to go for.”
The current big six will have a 90 per cent hold of the energy market, if Octopus’ takeover of Bulb is greenlit, according to recent calculations from Cornwall Insight.
He believed the cap had restricted funds flowing into the industry since its introduction five years ago, pre-dating the energy crisis, and meant “none of us have got capital to improve innovation and to improve our efficiency.”
Bullen feared the situation would now be exacerbated by Ofgem’s latest demands for commitments to protect capital to shore up the solidity of suppliers.
He said: “There is absolutely no case for investment in the energy supply market at the moment because obviously everybody’s losing money and obviously everyone is massively at risk. So, what’s the investment case? You can’t improve your balance sheet by gaining more investment. The only way you could do it would be by retaining profits, if you could make some, and building it up that way.”
Utilita is home to around 850,000 customers – with the vast majority signing up to pre-paid and pay-as-you-go models.
The company’s emphasis, since its founding in 2005, has been on encouraging people to responsibly cut energy usage to help drive down bills and reach the UK’s climate goals.
He also criticised Ofgem’s latest report card on the performance of suppliers, which outlined that Utilita had “severe weaknesses” in how it handled vulnerable customers.
Bullen said: “We think that study does not in any way reflect where we are as a business. If you look at stuff that’s in the public domain, for example, the stuff that’s in our app in a digital space, it doesn’t reflect really what Ofgem sees.”
When approached for comment, Ofgem argued allowing suppliers to use some of their customer credit balances for innovation, operating cash and hedging but not for riskier spending liking funding unsustainable growth, was the right balance.
A spokesperson said: “Ofgem’s priority is to protect consumers and we continue to hold suppliers to account to ensure they are delivering the best possible service for their customers.
“We work closely with suppliers and we also understand the pressures they are facing as a result of high energy prices. We believe our decisions deliver the right balance and both protect consumer interests while also being fair for suppliers.
Utilita unveils white paper to protect households
Bullen was speaking to City A.M. ahead of the launch of its white paper today, outlining measures to avoid excess deaths this winter from soaring energy bills and cold weather.
The white paper, submitted to both the Government and Ofgem, calls for an urgent intervention to avoid excess winter deaths associated with energy self-disconnection
Utilita warns that 2.25m pay-as-you-go (PAYG) households without digital connectivity and smart meters are at risk of self-disconnecting in silence, with no help from their suppliers.
The energy firm has called for five measures to alleviate the crisis this winter including smart installations in households and removing standing charges from PAYG customers.
It wants the Government and the wider industry to clamp down on stopping misinformation, end the stigma over PAYG to ensure customers who need the service use it, and for suppliers to work more closely with the Department for Work and Pensions and BEIS to help reduce self-disconnecting.
The energy boss noted that even with the heavy subsidies within the Energy Price Guarantee, many households would struggle to pay their energy bills over the winter months.
He said: “We’re at £2,500 per year for the average bill which compares £1,000 before this crisis started. We’re two and a half times more expensive. That’s the problem. That’s what’s causing people difficulty.”
Bullen praised the Government’s recent embrace of energy efficiency measures – with Chancellor Jeremy Hunt targeting a 15 per cent cut in energy usage.
The Government rolled out a further £1bn to boost insulation earlier this week, on top of £6bn pledged from 2025 to ramp up the energy efficiency of British homes.
Installation rates across the UK have dropped sharply in the past decade from over two million homes per year to just tens of thousands after former Prime Minister David Cameron slashed previous efficiency schemes in the mid-2010s – as revealed in the BEIS Select Committee report on energy pricing earlier this year.
Currently just one third of UK homes have an energy performance certificate rating of C or above – the minimum standards the Government has set for domestic households by 2035.
This means an estimated 19m homes need retrofitting – with a study from EDF and Sprift earlier thuys year revealing the insulation age of UK homes to be at least 46 years old.
The energy giant surveyed 2,000 UK homeowners, which indicated more than than half (58 per cent) the country’s households only meet the insulation standards of 1976 or before.
Bullen argued that improving the energy efficiency of people’s homes alongside measures to reduce usage would significantly lower the UK’s reliance on imports of gas from Norway and LNG from the US at premium prices.
He said: “Finally the Chancellor of the Exchequer has worked out that actually saving energy is a really good thing to do in terms of defusing the whole harm that Putin might be trying to do by restricting gas supplies to Western Europe. But it’s also a good thing for people to do, because of the cost of living.”