Things have moved on. At the Ofgem energy conference in January it was very clear the strong emphasis that Ofgem is now placing on vulnerable customers. The event started with a panel of vulnerable customer voices, which set the emotional tone for the event. That’s hugely welcome – albeit that I think there is more Ofgem could do to improve the way it looks at the distributional impacts of policies such as network charging where economists remain in the lead. And the credit for that positive shift is down to the personal stance that Dermot Nolan has taken – and the interests of a number of board members, not any change in Ofgem’s duties.
On the environmental front it’s a sorrier story. The RIIO2 sector strategies include the energy transition as a theme but it’s as if that’s an external force – like digitalisation – that the companies need to accommodate rather than something Ofgem is pressing them to raise their game on. On gas distribution in particular Ofgem seems to be going backwards, proposing to drop or scale back existing incentives on leakage and to reduce the focus on biomethane connections, for example. That, despite Ofgem’s principle objective being clear that the interests of consumers includes their interests in the reduction of greenhouse gas emissions. There’s no voice in Ofgem championing these issues, and if Ofgem doesn’t care then it’s hard to expect companies to.
Part of the problem here is that tackling climate change is seen as government’s job. Decisions about overall targets and subsidies are for government, but Ofgem cannot wash its hands of these responsibilities in relation to decisions that are squarely in its remit on network regulation and network charging, for example. It’s the same as on social issues where Ofgem is clear that major re-distributional policy decisions are for government but does nonetheless press companies hard to do more in this space.
The question of who does what between Ofgem and government has been a thorny issue over many years and was the rationale for introducing the concept of a Strategic Policy Statement (SPS) in both energy and water legislation. In energy, several years on we are still waiting for the statement to be delivered. When asked at the Ofgem event, Martin Cave and Claire Perry both said it wasn’t needed because the Greg Clarke speech had given a clear direction. That misses the point that the SPS was not so much about the direction of policy as what role government wanted Ofgem to play in helping delver it. Of course, Ofgem and the Department for Business, Energy and Industrial Strategy may feel they have a clear mutual understanding but transparency is important. The SPS wouldn’t be a panacea but it would be better than a regime where the balance is set by the personal interests of those at the top of Ofgem. Greg Clarke declared that the trilemma was dead – and at a strategic level he may have a point – but for decisions at the margin there remain trade-offs to be made between cost, security of supply and the environment. Ofgem tends to be in the driving seat for those marginal decisions and needs clarity about the role it is expected to play.
Maxine Frerk has extensive board level private and public sector experience, with a focus on consumer, regulatory and public policy issues in the energy sector. After 15 years at Ofgem she is now a consultant on energy regulation, chairs SGN’s customer engagement group for RIIO2, chairs the supplier forum overseeing Smart Energy GB’s performance, is a member of Ofgem’s electricity network innovation competition panel, an associate with Sustainability First and a visiting fellow at Oxford University.