Steering Ofgem

The process of enshrining a strategy and policy statement for Ofgem has dragged on for a decade. But Maxine Frerk, former senior partner at the regulator, believes this we may actually get there. But what will it actually mean and where is further clarity needed?

It’s now 10 years since the Energy Act 2013 came into force and it finally looks like we will get the Strategy and Policy Statement (SPS) it envisaged – and which Ofgem must have regard to.

Of course, it’s not over until the fat lady sings and the Statement is laid in Parliament. We have got to the stage of having a draft SPS before back in 2014 when there was a consultation and then…. nothing happened. At the time it proved too difficult for government to work out how to keep all stakeholders happy on the detail of the drafting and a change of government meant it got pushed to one side.

However, this time I feel confident we will get there. There is more consensus around the broad strategic direction and the document is a good summary of what we all know needs to happen. It is also an essential tool for articulating the role of the soon to be created Future System Operator (FSO).

The SPS doesn’t set out any new policies but provides a succinct summary from a range of recent documents including the British Energy Security Strategy and the Net Zero Growth Plan. These broad-brush strategic priorities are presented under the headings of Enabling Clean Energy and Net Zero Infrastructure; Ensuring Energy Security and Protecting Consumers; and Ensuring the Energy System is fit for the Future.

But even if it largely builds on documents that are already out there, there is value-add in the effort to articulate who does what. However, in places this still feels a bit of a muddle. There is a clear articulation of the FSO as the technical lead looking whole system. But on a key topical question of who is responsible for ensuring the vulnerable can afford energy bills and for any support needed (like social tariffs) it is strangely silent. The one line that I remember Ofgem regularly citing from the previous Social and Environmental Guidance was that government was responsible for any decisions with significant distributional impacts. That clarity has been lost. There are also a lot of cases where responsibility is seemingly shared between Ofgem, government and the FSO. Of course, we want a joined-up approach but someone needs to be accountable for keeping the lights on.

Having an SPS isn’t going to make a huge difference to Ofgem decisions any more than having a new net zero duty will do – but both are important. Ofgem already has the flexibility to take decisions in line with net zero but it has a lot of discretion in where to set its priorities.

Dermot Nolan’s concerns, shared in a recent Utility Week article, that companies will use the net zero duty to get investments through that Ofgem does not think are in customers’ interests is, in my view, exactly why we need both the SPS and the revised duty. The SPS makes clear that government’s strategic priorities include “network infrastructure delivered at pace and scale to handle increased capacity as electrification grows”. And in discussing the need for action on connections and anticipatory investment it says “these are likely to require appropriate adjustments to Ofgem’s regulatory framework”. As the elected body it is right that government – not Ofgem – makes these big inter-generational trade-offs. Even then Ofgem will have discretion as to the precise levels of investment it allows and its primary duty remains to consumers current and future. But the SPS and new duty provide an important steer.

The SPS and net zero duty are also important in the context of Competition and Markets Authority appeals given the CMA isn’t living and breathing energy policy in the way that Ofgem is. However, the CMA is bound by the same legal framework as Ofgem so in any future appeals around investment levels it can legitimately take government priorities into account.

The consultation on the SPS runs until early August. Hopefully this time government will navigate its way through all the comments it receives in time to lay the Statement in Parliament ahead of a general election. Although the Energy Act envisages that with a new parliament there can rightly be a revised SPS it is unlikely to be a priority for a new Labour government (still working out how green it can afford to be).

Either way we don’t want to have to wait another 10 years for Ofgem to be given the direction it needs and for us all to have greater clarity around who is meant to be doing what in this space.

Maxine Frerk is a former senior partner at Ofgem and currently a director at Grid Edge Policy, and a Sustainability First associate