Editor's letter: Principles-based regulation now seems like a pipe dream
Three years ago, Ofgem pledged to bring an end to prescriptive, restrictive regulation in the energy sector. In its place, it would usher in a new principles-based regime, under which companies would be trusted to do the right thing by consumers while competing freely and creatively.
How far-fetched that dream now seems. Today, we see the prospect of price regulation hanging over suppliers like the Sword of Damocles, and in the past week Ofgem has instigated a cap on prepayment tariffs and proposed measures to enforce restrictions on consumer back-billing, rather than allowing voluntary codes to dictate best practice.
In a time of anti-establishment, populist outrage, such interventions are unlikely to end soon. Ofgem is under pressure to do more to guarantee fair treatment for vulnerable customers – see the National Audit Office’s recent report, which also scrutinised Ofwat’s work on vulnerability – and in the networks space, the viability of self-governance via industry codes and panels is under fire from new entrants in a decentralising system.
There can never have been a more sensitive time for Ofgem to show that it is closing down the scope for bad consumer experiences or nepotism among system incumbents by imposing dogmatic rules and standards.
And yet, despite this adversity, Ofgem maintains that it is still working to extricate itself from the minutiae of business activity. It insists that it is still focused on the goal of principles-based regulation.
Being kind, this commitment suggests the regulator harbours a hopeless optimism that the current toxic political environment for utilities will fade and it will be allowed to continue with its pre-Competition and Markets Authority inquiry, pre-Brexit plans. But whatever the motivation, the outward effect is that Ofgem presents an inconsistent and unsettling face to its industry.
• A hearty well done to all finalists for the Utility Week Stars Awards. Despite the existential challenges for regulators and companies in the utilities sector, they demonstrate how individuals can subvert the negative public image of energy and water firms, replacing it with one of selfless dedication, hard work and talent. We look forward to meeting you all on 23 June for the prize-giving ceremony. To find out who the finalists are and to book your table, visit www.utilityweekstars.co.uk.