The Industry and Regulators Committee has taken aim at UK regulators, stating that they have “serious concerns” over their ability to operate with genuine independence from the government and how they are held to account.
Although the report dubbed, Who watches the watchdogs? Improving the performance, independence and accountability of UK regulators discusses UK regulators as a whole; energy regulator Ofgem is highlighted throughout, with one section stating that consumers “have no way of rewarding or punishing companies who face little competitive pressure to lower prices”.
This topic has been covered on Current± over the past couple of years, particularly in light of the energy crisis and soaring energy bill costs. Indeed, in August 2022, it was reported that the Good Law Project would sue Ofgem due to the rise in the energy price cap due to not assessing the disproportionate impact on elderly people, children and people with disabilities before confirming the price cap increase.
This is referenced generally in the Committee’s report. Cadent Gas told the organisation that the energy regulator had been under “significant pressure” over its operation of the energy price cap and energy bills.
The gas company stated that “regulators are understandably nervous about making decisions that may be highly controversial or consequential without strong government guidance”, which “can lead to risk-aversion, inertia or inaction”.
Cadent’s analysis is of great importance, as the energy regulator must make decisions that support both energy suppliers and consumers. Nearly 30 energy suppliers collapsed due to the energy crisis, and Bulb entered Special Administration. Alongside this, the regulator must also consider the needs of struggling consumers who may have difficulty paying their energy bills.
It is important to note that Ofgem has pressed the UK government on how it should effectively cross-subsidise some customers in financial difficulty for some years. This came to a head throughout the energy crisis, and Ofgem was criticised for its approach. Should the government have given guidance on this in the years prior, many customers could have been sheltered.
Touching on accountability in the report, Stuart Hudson, formerly of Ofgem, told the Committee that “the first level of accountability is in the hands of the regulators themselves”.
National Grid, on the other hand, outlined that Ofgem should focus on long-term best value for consumers instead of the lowest cost in the short-term.
Commenting on the release of the report, Energy UK’s deputy director of policy, Charles Wood, detailed that the report is “reflective of the core challenges facing utility regulation in the UK” and that Energy UK “hopes the government reflects the report’s findings in its ongoing work to deliver smarter regulation for the UK”.
“It is critical that energy policy be supported by a Strategy and Policy Statement that enables the regulator and the future system operator to focus on long-term certainty and market confidence while continuing to deliver for consumers, on the security of supply, and the continuation of the UK’s global leadership on decarbonisation,” Wood added.