What’s wrong with Ofgem?

The controversy over forced installations of prepayment meters has sparked renewed questions over whether Ofgem is failing to enforce its own rules. Former senior partner Maxine Frerk details her concerns around whether the regulator is listening to the wrong voices.

Yet again Ofgem is in the headlines accused of being asleep at the wheel, this time around forced prepayment meter installations.

It should not have been hard to anticipate that with more customers struggling with bills prepayment was going to become an issue – and fuel poverty groups were raising concerns back in the summer. But Ofgem was being assured by suppliers that all was well.

A major cause of the problem seems to be the use by suppliers of sub-contractors paid piece rate for the number of prepayment meters they forcibly install. This is redolent of the problems the industry had with doorstep selling a decade ago and warning bells should have been ringing – but that corporate memory has been lost from Ofgem (and seemingly from the suppliers).

This latest crisis also has echoes of the serious criticisms levelled against Ofgem by the BEIS Select Committee last summer around supplier failures with Ofgem described as incompetent, failing to understand supplier business models and failing to enforce its own rules. Major concerns were also raised about the lack of discussion and oversight by the board of significant decisions.

Again on prepayment meters Ofgem is being accused of being too slow and too ready – in the words of Caroline Flint (chair of the Committee on Fuel Poverty) – to give suppliers the benefit of the doubt. This was also the reason Christine Farnish gave for standing down from the board last year – that it was too focussed on suppliers’ interests and not enough on consumers.

Well-resourced industry players will always have more opportunities for influence with the regulator than under-resourced consumer or environmental groups. To combat it as a regulator you need to seek out and listen doubly hard to those other voices, to tune your antennae to pick up early warning signs.

The rapid turnover of staff in Ofgem will not have helped. It means Ofgem people are particularly dependent on the companies to explain how things work and to help them get up to speed. In the various re-organisations over recent years little value seems to have been placed on the experience that can help in anticipating issues, knowing how things really work in the companies or even simply judging when companies are bluffing.

A regulator has to regulate

There’s also a question of regulatory style. Jonathan’s arrival in post as CEO coincided with the pandemic when a collaborative approach was essential to navigate through challenging and unchartered territory. Ofgem managed that well but a collaborative model isn’t right in all circumstances. At times a regulator has to regulate.

The board also has to take some responsibility. The four non-exec board members all have corporate backgrounds with the chair Martin Cave an academic. There is no consumer or environmental voice. It is not clear if they are equipped to bring the sort of expert scrutiny and challenge that is needed on complex regulatory decisions – or indeed if it is clear what the role of the board is meant to be in those decisions.

The advert for a successor to Martin as Ofgem chair says they are looking for an accomplished organisational leader with an engaging and assured communication style, humility and integrity. It’s a substantial role (14 days / month) as it probably needs to be – but the balance of responsibilities between the CEO and the chair then risks becoming blurred which creates its own governance issues.

With Ofgem in the firing line it is no surprise that BEIS has re-launched its review of economic regulation that was announced a year ago. The original document focussed on a review of regulators’ duties and the provision of strategic direction (both welcome but unlikely to change the world) and increasing network competition (an unwelcome further distraction). The latest announcement also references the need for increased investment and an enhanced customer experience. While there might now be calls for a radical overhaul of Ofgem, that too risks being a distraction. The review should focus instead on governance including thinking afresh about the role of the board in regulatory bodies and how to ensure the consumer voice and net zero concerns are not lost.

In the meantime Ofgem should ensure it is listening to the diversity of voices that are impacted across the range of its work.

As a practical illustration, I have recently been trying to get Ofgem to address the way in which the price cap fails the 3 million customers on Economy 7 or other multi-rate tariffs. Having raised my concerns with Ofgem back in the summer, Economy 7 didn’t feature in its Programme of Work for the price cap published at the end of last year. Sustainability First therefore hosted a roundtable for consumer groups and others where I presented shocking evidence on the lottery that these customers face in terms of tariffs and the fact that the price cap doesn’t reward them for using more electricity at night when wholesale prices are lower.

I am confident that Ofgem now understands the issue but inevitably they will get push back from suppliers who benefit from the current rules. Whose voices will it listen to? And do we have to wait until Economy 7 hits the headlines before Ofgem acts? Let’s see.