Government and Ofgem have sleepwalked into this energy crisis | Nils Pratley

For the last umpteen years Ofgem has offered parental-sounding advice when adjusting the energy price cap. “Switch to save money”, the regulator trumpeted last February as the maximum rate was raised by £96. Even last autumn, when £139 was added, Ofgem was still saying customers “can avoid the increase by shopping around”.

There’s no escape now. As the thumping £693 increase from April landed on Thursday, the regulator merely offered a limp line about how it knows it’s all “extremely worrying for many people”. It, like everybody else, knows there aren’t better deals to switch to. Competition has disappeared. The price cap has become the floor rate, not the ceiling. Roughly 80% of households are on it – the main exceptions being those who had the luck or foresight to secure a fixed rate before wholesale gas prices quadrupled.

To put it mildly, the energy supply market looks nothing like the one Ofgem has spent a couple of decades trying to encourage. Some 29 suppliers – half the tally last June – have gone bust and the high corporate casualty rate cannot be pinned solely on the “unprecedented” (the regulator’s favourite word) rise in gas prices.

At least part of the blame falls on a rotten regulatory system that allowed undercapitalised companies to try their luck by operating with skimpy hedging policies on energy-purchase contracts. Ofgem had a go at tightening licence rules a couple of years ago, but merely tweaked. The admission by the chief executive, Jonathan Brearley, in December that a proper version of “financial resilience” is required arrived extremely late in the day.

Some £68 of the £693 increase in the cap, note, relates to industry-wide “supplier of last resort” levies – in other words, the cost of moving customers of failed companies to new suppliers. That’s £1.5bn in real money. Nor does the figure include anything for Bulb, which was quasi-nationalised last year. The bill for Bulb has been deferred for another day.

Meanwhile, the corporate survivors look sickly. All, with the possible exception of Centrica’s British Gas, are assumed to be making losses (the money in this crisis is being made by energy producers and traders). Few tears may be shed for their shareholders, but the policy point is that the government and Ofgem are relying on the same firms to double up as service organisations on the way to net zero by selling us heat pumps, electric boilers and the rest. At the moment, they’re limping from one price cap announcement to the next. Little long-term investment or innovation will be happening.

Yes, the surge in gas prices is the prime driver of this crisis, no question. Even if Ofgem had policed its beat aggressively, financial pain for customers would be unavoidable. The chancellor would still be intervening, just as most of his EU counterparts are doing. But it is hard to avoid the conclusion that both regulator and government sleepwalked into events and, even now, are placing huge faith in the idea that wholesale prices will fall and then stabilise.

Rishi Sunak’s support package for customers seems to have been constructed at the 11th-hour, with little consultation with companies on how the £200-per-household rebates will be administered. If the price cap rises again in October – and another £250 is the consensus forecast – will more loans and rebates be made available?

As for Ofgem’s pro-resilience reforms, they’re still a work in progress. The price cap is being made more flexible, which is an easy and obvious reform, but stress-tests on corporate balance sheets and hedging policies are only taking place now. Ofgem’s visibility over the strains in the system is improving by the week, which is the good news, but it has yet to emerge as the pro-intervention regulator it should have been all along.

Meanwhile, the big fear in the background is another stage to the price surges in wholesale gas markets. The obvious candidate is a Russian invasion into Ukraine, which could conceivably make Thursday’s measures look inadequate at a stroke. Even a rapid plunge in prices isn’t a trouble-free outcome either: a lot of hedging contracts would have to be unwound in a hurry.

One assumes a vaguely functioning energy market, complete with switching, will return eventually, but this crisis cannot be declared to be over. Sunak’s political fix, inadequate already, may be exposed as short-term in short order; and the regulatory approach is being remodelled in a rush. “Extremely worrying” doesn’t quite capture it.