Ofgem under fire from five former watchdogs
Jim Armitage is the City editor of The Independent and London Evening Standard group of newspapers. He has been a reporter and editor for more than 20 years and was recently shortlisted for the Press Gazette financial journalist of the year and The Society of Editors financial journalist of the year awards. He contributes news, investigative reports and comment to the Independent titles plus a daily column in the Evening Standard.
Deputy Business Editor
Sunday 10 August 2014
Former energy regulators have urged competition authorities to keep Ofgem staff away from their investigation into household bills, claiming that the watchdog itself is partly to blame for high prices.
The ex-regulators, who form some of the most senior of the first wave of energy privatisation watchdogs, believe that Ofgem may influence the 18-month investigation by the Competition and Markets Authority (CMA) into whether, and why, millions of households’ bills are too high.
One, Stephen Littlechild, said they had become increasingly concerned about the current regulator’s impact on the market, saying “when we left it, it was in very good shape”.
He and four other former regulators have published a submission to the CMA inquiry saying Ofgem, whose role is to ensure that the power giants are not overcharging customers, has made the situation worse by interfering in the market. They say that prices have shot up since Ofgem began making interventions, many of which have the inadvertent effect of adding costly new burdens to companies which are then passed on in the form of higher prices.
The signatories to the submission say that profits of the Big Six energy suppliers have risen from £233m in 2009 to £1.1bn in 2012: proof, they say, that Ofgem is failing to create a better deal for the public.
The concerned regulators are Mr Littlechild, head of the electricity regulator Offer in the late 1990s; Sir Callum McCarthy, head of Ofgem from 1998 to 2003; Clare Spottiswood, head of Ofgas from 1993 to 1998; Eileen Marshall, who has held roles at Offer, Ofgas and Ofgem; and Stephen Smith, regulator at Ofgem and the Gas and Electricity Markets Authority between 1999 and 2010.
Mr Littlechild said at the weekend: “All I’m saying is [profits] have gone up consistently since Ofgem started intervening in the market.”
The paper takes the example of Ofgem banning companies from charging high prices to existing customers while offering cheap introductory offers to lure in new households. The change had been well-intentioned – to get companies to lower their prices for loyal customers or those less capable of willing to shop around – but it had the effect of killing off the low introductory offers. Prices ended up higher overall than they would have been if Ofgem had let the market compete freely, the submission claims.
Mr Littlechild told The Sunday Telegraph another example of bad regulation was Ofgem’s recent decision to cut the number of tariffs on offer. While making it simpler for people to work out which was the best value deal for them, it also had the effect of killing off some cheap tariffs for vulnerable customers, he said.
The signatories are concerned that Ofgem staff may be seconded to the CMA team.
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