Energy firm bosses face bonus ban if they ‘break the rules’ in landmark Ofgem reforms

Energy company executives could face bonus bans if their actions cause serious harm to consumers under new government reforms designed to strengthen regulatory powers.

The Department for Energy Security and Net Zero (Desnz) has announced that energy regulator Ofgem will undergo a “transformation” to support consumer protection, ensuring faster compensation for households let down by their suppliers.

The changes are intended to “incentivize” managers to act in the best interests of their clients. Ofgem will have the power to ban bonuses if license conditions are breached in a way that causes serious harm to the consumer.

These reforms represent the first major update to Ofgem’s coverage since the regulator was established in 2000. Ofgem has never previously had the power to hold individual directors personally liable.

Ofgem’s stronger powers will allow it to directly enforce consumer law; This means customers will no longer need to go through lengthy court processes to get back what they are owed if companies treat them unfairly.

The changes will include removing Ofgem’s responsibility for oversight of home improvement plans, a role that will be carried out within government by the Warm Homes Agency.

Desnz said the market had grown more complex since Ofgem was established and now included a wider range of products and services and an increasing number of customers in parts of the market covered by little regulation.

This included heating oil customers who saw prices rise during conflicts in the Middle East.

Energy Secretary Ed Miliband said: “This Government is fighting the public’s corner and today we are taking steps to strengthen protections for energy consumers. This includes tough and fair measures to ban bonuses from energy companies if they break the rules.”

Minister for Energy Consumers Martin McCluskey said: “Every household must be given a fair deal and today we are transforming our energy regulator to give families stronger protection.

“We are giving Ofgem stronger powers to tackle consumer corner, changing their remit so they can protect every consumer, and introducing new measures so they can hold energy managers to account.

“We are making the market work for those who use it, working with regulators to make sure customers come first.

“We will continue to stand with working people and stand in their corner as we fight the economic crisis, which is our number one priority.”

Interim Ofgem chief executive Tim Jarvis said: “Great Britain’s energy system is undergoing the biggest changes in our lifetimes and the regulator needs to be able to keep up with this 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 confidently enter markets offering new products and services.

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

“We look forward to working with the Government, consumer representatives and the energy sector to drive the change needed both at Ofgem and across the energy sector, with the tools, powers and clarity to deliver this.”

Dhara Vyas, chief executive of Energy UK, which represents the firms, said: “It is disappointing that this review falls short of the radical reform needed to create a more streamlined and focused regulator better equipped to both protect consumers and promote an investable energy sector.

“The long-term answer is to tackle deep-seated structural and cultural problems and move towards regulations focused on delivering investable, innovative energy markets that support growth and lower bills.

“This fundamental problem has little to do with insufficient powers, but rather how the regulator has chosen to use its powers in the past.

“Energy UK looks forward to working with Ofgem and the Government to ensure that regulation enables stability, investment and growth in the energy sector, while also playing an effective role in protecting customers.”

Gillian Cooper, energy director at Citizens Advice, said: “We welcome the actions outlined in the review, which will strengthen consumer protection, ensure a just transition to green energy and provide Ofgem with the tools it needs to enforce the rules.

“Ofgem must now seize the opportunity to create a more innovative market that offers better choices and protections for consumers, and ensure energy suppliers know there are real consequences for falling short.

“Effective regulation is a key element that underpins a well-functioning energy system. But consumers also need strong advocacy, trusted advice and the ability to resolve issues quickly and fairly, so they can make informed decisions and know they won’t be out of pocket if things go wrong.”