Ofgem 'needs to build expertise' to regulate networks effectively

Senior figure at Northern Gas Networks raises concerns over “large turnover of staff”

Ofgem currently lacks the technical expertise needed to regulate networks effectively, a senior figure at Northern Gas Networks has warned.

Speaking at the Utility Week Congress in Birmingham yesterday, regulation director Stephen Parker raised concerns over “a large turnover of staff” at the regulator and the implications for the second round of the RIIO price controls.

Parker told delegates that, whilst the RIIO framework itself is sound, there are issues over its application. These issues include Ofgem’s ability to cope with “detail”.

“The regulator needs to get a better understanding of the businesses it's regulating,” said Parker. “It is not good that we see such a large turnover of staff at the regulator because they need to build their expertise and understanding of the sector to be a better regulator. And I think that is a real concern that doesn’t get talked about enough.”

He continued: “We submit to the regulator every year War and Peace both in terms of numbers and words. It would know a lot about these businesses if it could digest the information it requests, and again that comes back to the capabilities of the regulator to process the amount of data it has available to it.

“And given the way technology is moving, it can have access to even more data, because we’re getting more data about our network – about the performance of our business – and that information is available to the regulator.

“The question is: have they got the capability to use that?”

“I do wonder whether the skillsets of pure economic regulators are suited to the RIIO framework,” he added.

Parker said Ofgem must also become better at differentiating between the performance of networks: “I think the regulatory framework has to differentiate. It has to create competitive pressures. It has to pick, to a degree, winner and losers and create come competitive tensions.

“And I think that perhaps there are some examples where that has not taken place.”

Furthermore, he said Ofgem needs to respond faster to instances of poor performance to ensure the price controls retain legitimacy in the eyes of the public.

“I think it needs to be better at escalating processes for poor performance in a quicker manner,” he remarked. “It is quite cumbersome in the way that it will escalate issues. It does let them fester for a year or two before it brings them into its processes.”

In August, Ofgem appointed Peter Bingham to the newly created of role of chief engineer. In a blog on Ofgem’s website, Bingham said he hoped to bring a “new technical focus” to the regulator.  

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