Ofgem will need “nerves of steel” not to cave into public pressure by raising the bar for entry into the energy supply market too high, a recently departed senior executive at the regulator has warned.
Rob Salter-Church, who was until last week director of retail systems transformation at Ofgem, told a Westminster Forum conference today (Tuesday) that the proposed new regime for licensing suppliers should not impose excessive requirements on would-be entrants.
The proposals, unveiled last month, include requirements that suppliers should cover a share of any renewable obligation scheme owed and customer credit balances if they go bust.
The move by Ofgem followed the collapse of a string of suppliers over the past two years.
Salter-Church, speaking in his new capacity as a director of energy and utilities at PwC, warned that his old employer faced strong public pressure to fashion a more robust supplier licensing regime but should not overstep the mark.
He said: “Failure is a key part of any market and it’s not clear how far Ofgem wants to use any of these regulations in order to reduce the risk of failure in the market.
“They need to have nerves of steel to hold their ground and to recommend what I think is quite a low bar and a limited increase in the current bar to entry.
“Ofgem’s objectives should be raising the bar somewhat. This is not about ensuring that all suppliers will be effective businesses in the long term and making sure there are no failures. This is just about setting a low bar to screen out the absolutely ill-prepared suppliers.”
Salter-Church also predicted that Ofgem would be left open to appeals mounted by disgruntled would-be suppliers, which have been turned down for a license.
“I wouldn’t be surprised if Ofgem has to deal with increased challenges from people wanting to access the market.”
In order to safeguard against the risk of becoming an “arbiter of good intentions”, which would be “really difficult in practice”, Ofgem would have to ensure it followed a “consistent approach” when making licensing decisions.
Salter-Church said the proposed regime had a “lot of similarities” with that which existed before the opening up in 2002 of the market to competition, when there had been a greater focus on customer protection.
“I understand that the pendulum is shifting back in this direction,” he said, adding that it may swing back further towards consumer protection.
He said that Ofgem’s proposals could favour incumbent suppliers and those with more traditional business models, as well as potentially making it difficult to pursue innovation.
Salter-Church, who oversaw the shaping of the price cap for Ofgem, said the regulator should not push for more resources in the pan-government spending review, which is due to take place next year.
“The organisation needs more resources to deal more effectively with the energy transition: it’s a big job,” he said, adding that Ofgem will require new capabilities, such as commercial skills and financial modelling, in order to execute the new licensing regime successfully.