Energy bosses 'could have bonuses blocked by watchdog' in bid to 'stand up for working people'

The Government says the “comprehensive overhaul” of the watchdog will allow it to act as a “true consumer champion”.

Ofgem says the powers are needed as the country’s energy system goes through “the biggest changes in our lifetime”.

The new measures will grant Ofgem stronger powers to enforce consumer law directly, avoiding the need for lengthy court processes, the Government says.

The regulator will also have greater oversight to ensure energy bosses act on behalf of customers, “with powers for Ofgem to ban their bonuses if they break the rules”.

Energy Secretary Ed Miliband described this move as “tough and fair”.

Further, the watchdog’s remit will be streamlined to focus on “consumer protection”.

It will no longer oversee home upgrade schemes, allowing it to concentrate on economic issues and to deal with emerging areas of the energy market.

It will have greater technical expertise and will reassess its approach to risk, “enabling the regulator to take faster decisions in the interests of consumers”, the Government says.

The watchdog will also have “stronger board-level oversight of skills and culture”.

Ofgem’s role is to protect the interests of gas and electricity consumers by overseeing price controls, competition, and company conduct.

It sets the price cap for household energy bills, affording customers a degree of protection from the wildest swings in the market.

Today’s announcement marks the first major update to its scope since it was founded in 2000.

In the subsequent decades, the market has grown more complex, and some areas, such as heating oil, are covered by little or no regulation.

The Department for Energy Security and Net Zero says that “the transformation will empower the regulator to ensure energy consumers are treated fairly, including measures to guarantee good practice in the market”.

It says that the changes will help guarantee that Ofgem “is fit for the future and can ensure all consumers in today’s energy market are supported”.

Mr Miliband said: “This Government is fighting people’s corner, and today we set out steps to strengthen protections for energy consumers.

“This includes tough and fair measures to ban energy company bonuses if they break the rules.”

Martin McCluskey, minister for energy consumers, said that the changes were an example of Government “standing up for working people”.

He said: “Every household must be given a fair deal, and today, we transform our energy regulator to give families stronger protections.

“We’re giving Ofgem stronger powers to fight consumers’ corner, changing their remit so they can protect every consumer, and introducing new measures so they can hold energy executives to account.

“We’re making the market work for those who use it, working with the regulator to make sure customers are put first.

“We will continue to stand up for working people and fight their corner as we tackle the affordability crisis – our number one priority.”

Tim Jarvis, interim CEO at Ofgem, said the changes were needed as Britain shifted to renewables and claimed that they would allow the regulator to protect consumers while ensuring the system remained attractive to investors.

He said: “Great Britain’s energy system is going through the biggest changes in our lifetimes, and the regulator needs to be able to keep pace with that change.

“This review sets out ambitious, necessary reforms that will enable Ofgem to meet the challenges of regulating an increasingly electrified and flexible energy system and protect consumers so they can engage confidently in markets offering new products and services.

“We have delivered significant reforms in recent years, but this review enables us to make changes at a more systemic level to ensure we are delivering an energy system that works for consumers, that is attractive to investors and provides a stable, reliable environment for participants in the industry.

“With the tools, remit and clarity to deliver this, we look forward to working with the Government, consumer representatives and the energy sector to drive the change that’s needed – both in Ofgem and across the energy sector.”

The move was praised by Gillian Cooper, director of energy at Citizens Advice. She said suppliers needed to know there were “real consequences” for not meeting their obligations.

She said: “We welcome the actions set out in the review, which will strengthen consumer protections, enable a fair transition to green energy and give Ofgem the tools it needs to enforce the rules.

“Ofgem should now seize the opportunity to bring about a more innovative market, with better choices and protections for consumers, ensuring energy suppliers know there are real consequences for falling short.

“Effective regulation is one pillar which underpins a well-functioning energy system. But consumers also need strong advocacy, trusted advice and the ability to get problems sorted quickly and fairly, so they can make informed decisions and know they won't be left out of pocket if things go wrong.”

The announcement comes as think tank, the Institute for Public Policy Research, recommended giving free electricity to customers when renewables are generating too much power.

These “free clean electricity hours” should be available to all households with a smart meter and would provide “an immediate, visible link between clean power and lower bills”, it says.

Further, it suggests that the Government act to claw back “excess profits” made by energy network companies that are responsible for building and maintaining the grid.

The latter plan would see the profits returned directly to households in the form of a £183 rebate, according to IPPR figures.

The “free clean electricity hours” would save households £13 a year this year and £18 in 2027, although the think tank claims it would help “to unlock much larger system‑wide savings over time”.

Tazu Walden, researcher at IPPR, said: “Upgrading the electricity grid is essential for a clean and secure energy system, but the way we do it matters.

Right now, the system isn’t consistently delivering value for money for consumers, and cheaper ways of running the grid are being overlooked.

“With the right reforms, we can build the infrastructure we need while making sure households see the benefits in lower bills.”