Ofgem “technocrats” are not well placed to decide the right balance between meeting net zero and cutting energy bills, the regulator’s former chief economist has told a House of Lords committee.
At the second session of its inquiry on Ofgem and net zero, the Lords Industry and Regulation committee took evidence from economists including Joe Perkins, who moved from the regulator last year to become senior vice president and head of research at consultancy Compass Lexecon.
A “stripped down” regulator might be a “more effective” organisation, he said: “It’s responsibilities are too great and size too large for its role.
“If you were to have a credible system architect, there is potentially quite a few roles Ofgem could step back from. Roles it currently plays in market design and development are played in other countries by a system operator. Perhaps Ofgem could step back and become a leaner and more focused organisation.
“It’s difficult for an organisation of Ofgem’s scale to have the focus it needs. It could get more focused by stripping out some functions.
“There is a case for spinning out areas and having a more nimble approach.”
But he said that while splitting Ofgem up and separating out its functions may help achieve greater clarity in terms of the regulator’s functions, it would not necessarily lead to a lower headcount because there may be a need for more co-ordination.
Perkins added that the “most important thing” is not to hand Ofgem further duties and warned against moves to make meeting net zero one of Ofgem’s primary duties because it is not relevant to many of the regulator’s core functions.
“Quite a lot of what Ofgem does doesn’t have a very direct relevance to net zero, such as consumer protection. Having a primary net zero objective could mean some of those issues get neglected.”
Perkins also said there is scope within existing legislation for the government to give the regulator a stronger policy steer to help manage trade-offs.
“There are major trade-offs between different generations and different groups of consumers. These are not trade-offs that technocrats are well placed to make.”
Catherine Waddams, emeritus professor at Norwich Business School, agreed that while Ofgem can inform and implement decisions it cannot to make them itself.
She said: “They can handle the technical side but are not equipped to make trade-offs. Net zero is difficult and someone is going to need to do this and that isn’t the regulator. The obvious place is government and Parliament.”