Ofgem consultants spend rises amid high staff turnover

Ofgem spent just shy of £30 million on consultant fees last year, up by more than £6 million on the previous year and almost double the £18 million spent in the 2019/20 financial year.

The regulator has attributed rising consultancy costs to the energy crisis. However, former employees have suggested that a “brain drain” has left the regulator over reliant on third party support.

In total Ofgem spent £29.6 million on consultancy services last year, the regulator’s annual accounts reveal. Overall operating expenditure was £142.2 million, a 10% increase on the previous financial year.

Ofgem’s annual accounts state that the increase in expenditure was “primarily due to increased staff numbers and consultancy spend to respond to the gas markets crisis and deliver new renewable energy schemes”.

Specifically on consultants’ fees, the annual accounts add: “We attempt to minimise our reliance on external support by running targeted recruitment campaigns for the skills required to deliver our strategy.

“We continue to use professional service support to obtain access to specialists who provide professional or legal advice in relation to the delivery of our portfolio of work, as well as those that provide specialist delivery support where it is not economical to maintain this expertise in-house.”

However, a former Ofgem employee told Utility Week that the rise in consultancy fees is “a sign of an organisation that has lost its way and is in crisis”.

They added: “[Ofgem is] throwing money at the problem, suggesting a lack of faith in the team to do a good job.

“Clearly the issues around the energy crisis have required a huge amount of attention – and in some areas around financial engineering Ofgem probably does need additional expert help. But in other areas I think it is less clear.”

Staff numbers at Ofgem have increased from 1,246 to 1,485 in the last year with the overall wage bill going up by just under £15 million to £79 million. Total staff costs including bonus payments, pension contributions and expenses came in at just over £104 million, up on the £86 million for 2021/22.

Despite the increased headcount, Ofgem recorded a high staff turnover rate with 24% of employees leaving their post during the past year. That is the second year in a row when around a quarter of the regulator’s workforce has moved on, with 26% of staff also leaving or retiring in 2021/22.

The figure is significantly higher than the UK average, with a recent Gartner study revealing that the employee turnover rate across all industries for 2022 is 9.3%.

Another former Ofgem employee described the staff “brain drain” as “ridiculous”. They added: “It is not sustainable to lose so many experienced employees on such a regular basis and continue to work to the same standards.”

They added that a large part of the issue results from the regulator’s cost-saving restructuring, which “effectively forced experience staff out the door […] leaving them needing to use consultants”.

In 2019, Ofgem announced that it was overhauling its corporate structure to move towards a more “efficient, flatter leadership structure”. The regulator continues to tinker with its leadership structure, with the most recent reshuffle announced just last month.

An Ofgem spokesperson added: “We’ve been tackling a once-in-a-generation energy crisis – and its been all hands to the pump. We’ve had to scale up teams at speed with expert, external support to deal with everything from insolvencies, the cost-of-living crisis and government’s net zero plans.

“It means we can meet industry and ministers’ ever-increasing expectations of us without breaching our funding envelope by permanently increasing our headcount, salary or pension costs”.

How does Ofgem’s spending compare?

To put Ofgem’s fees into perspective, fellow regulator Ofwat spent just £421,000 on consultants fees during the past 12 months, data obtained by Utility Week via a Freedom of Information request reveals.

More than a third of Ofwat’s consultancy spend went towards a study comparing the water sector’s retail performance to other sectors, while just under £100,000 was spent on the assessment of drainage and waste management plans.

A further £20,000 was spent obtaining advice on water company executive pay, with consultants also brought in to advise on the Havant Thicket reservoir proposal and the Cwm Taf Project. See full breakdown below.

Ofwat consultants spend: