One thing everyone can agree on however is the importance of setting the cap at the right level. As we’ve said in Utility Week before, the retail market is more competitive than ever with over 60 suppliers and a record 5.5 million customers switching last year. Energy minister Claire Perry recently said to the BEIS Select Committee that: “You want Ofgem to set the cap at a level that does not disincentivise switching, allows investment in the market, and rewards loyalty.”
It’s no slight on Ofgem to recognise that it will be a challenging task achieving that balance. A well- established part of any robust price control process is that decisions of this significance can be subject to independent, expert review if required. This ensures fairness for those affected and provides a safeguard with an inherent requirement that decisions are evidence based and can withstand detailed scrutiny. That makes for better decisions – which is in everyone’s interest.
Regulators would accept such discipline is important for the integrity of the system. It would be a dangerous precedent if such decisions could be unchallenged on their substance and lead to arbitrary interventions in future
That’s why we think that the legislation going through Parliament should allow for Ofgem’s decision to be referred to the Competition and Markets Authority (CMA). This would simply be consistent with the process that already operates for price controls made by regulators such as Ofwat, Ofcom – and indeed Ofgem – across the utilities sector.
To suggest that this represents an attempt to undermine or delay implementation of the cap ignores the fact that there is already an appeal option under the draft legislation – it’s just that judicial review is not the most appropriate or effective way. When it comes to reviewing decisions based on economic analysis – in simple terms examining the numbers rather than the legal considerations – the CMA is the expert body established for this purpose and the best route to assess whether the decision itself is correct for customers and suppliers.
Introducing a broad price cap means treading carefully to avoid unintended consequences, including protecting the benefits that flourishing competition is bringing to consumers. The existence of an appropriate appeal process is an important check and balance and recognises how important it is that in making this decision Ofgem gets the balance right for customers and all market participants.