Is Ofgem past its sell by date?

23rd May 2022

 

I can’t be the only person who is now considering whether the energy regulator has reached the end of its useful life. A review into the role and activities of Ofgem is now surely inevitable. I’m not suggesting they are to blame for all of the problems facing consumers, desperately trying to cope with sky-high energy bills, but have they made things better or worse?

Let’s look at a couple of examples. Firstly, the approach taken to encourage greater competition in the energy supply market on the basis that consumers would benefit. This is economic ideology not practical regulation. Competition only works effectively when an economic market is perfect and that isn’t energy supply. In letting the market rip, consumers assuming a regulator was there to protect them took advantage of lower unit prices. Well, actually some did. The majority did not. A sure sign that the market isn’t functioning equally. And it wouldn’t take a genius to work out who gained and who didn’t.

But those new competitor companies played the system. From their bedrooms or garages, they devised plans to increase market share by offering ever-cheaper deals, betting the house on wholesale energy prices falling. These companies were never tightly regulated by Ofgem, and their role in this gamble demands closer scrutiny.

So when it all went pear-shaped, companies went to the wall, who paid the price? Did heads roll at Ofgem? The answer to the latter is no and the former, well as always the consumer paid the price. The cost of Ofgem failing to regulate poorly managed business was simply passed onto the consumer, already reeling from high energy bills.

And here’s the double-whammy. When they reviewed the price cap, Ofgem put this cost of failure onto standing charges rather than unit prices. So the cash comes in, without any reference to how carefully a consumer is using energy. So a pensioner, living alone at home, counting every penny spent, has to pay the same bail out costs as a lottery winner living the high life, without a financial care in the world. Is it time to call time on Ofgem?

Best wishes

Mike Foster, CEO

Mike Foster

EUA's Chief Executive

 

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