Skip to content

Ed Miliband’s Neutering Of OFGEM

May 17, 2017

By Paul Homewood

 

 

John Constable explains how Ed Miliband neutered OFGEM’s powers to stand up for consumers’ best interests:

 

image

There is likely to be increasing pressure to reform the gas and electricity regulator, Ofgem, which is widely held to have failed in the protection of consumers. This accusation is to a large degree both misguided and unjust. Ofgem is constrained by its Statutory Duties, which were revised by Ed Milliband in 2010 to put climate policy costs beyond criticism. It is this, as much as institutional lassitude, that accounts for it being so ineffective a consumer champion.

In the wake of concern about rising electricity retail prices to domestic households, the Conservative Party has suggested a price cap on Standard Variable Tariffs. It is fair to say that this policy has not been well received by commentators and economists, who with very good reason believe it likely to be counterproductive. Whether the voting public will be persuaded that a price cap is in their long-term interest remains to be seen, but it could well prove popular. – With a maladroit sense of timing that is typical of the hapless energy industry my own electricity and gas supplier has just sent me a letter explaining that due to price rises next year’s annual dual fuel bill is likely to be about 8% higher. Doubtless many other households are receiving similar news, and perhaps thinking positively about Mrs May’s offer to stamp on rip-off tariffs.

One, more sophisticated, reaction to this sort of news is to blame the regulator, Ofgem. If the government needs to wade in to protect consumers, surely the regulator must have failed in its job. This is an understandable conclusion, but to a very significant degree it is unjust to Ofgem, which is itself tightly regulated by the legal definition of its Statutory Duties and powers. These are defined in the Gas Act 1986, the Electricity Act 1989, the Utilities Act 2000, the Competition Act 1998, the Enterprise Act 2002, the Business Protection from Misleading Marketing Regulations 2008 and the Unfair Terms in Consumer Contracts Regulations 1999, and, crucially, in amendments to these acts. Perhaps the most important of these amendments occurred in the Energy Act of 2010, which originated under Ed Miliband when he was Secretary of State at the Department of Energy and Climate Change. Though a small change, it drew the regulator’s teeth.

The Utilities Act 2000 had described the overarching principal objective for energy regulation as the protection of the interests of existing and future consumers, wherever appropriate by promoting competition (for further details see this DECC analysis). This was a lucid and unconstricting brief. A determined regulator could range far and free in the pursuit of consumer welfare.

The Energy Act of 2010 amended this principal objective by defining “interests” thus in two separate paragraphs (16 (3) 1A and 17 (3) 1A referring to gas and electricity:

Those interests of existing and future consumers are their interests taken as a whole, including—

(a) their interests in the reduction of gas-supply/electricity supply emissions of targeted greenhouse gases; and

(b) their interests in the security of the supply of gas/electricity to them.

This change was of enormous importance, since an increasingly large part of the charges on the consumer were (and still are) the result of policy. In effect, the revision to Ofgem’s principal purpose made them unable to comment on the imposition of cost increases resulting from measures to mitigate climate change. Since these coercive cost increases are invisible to the market and cannot be reduced by competition, there was no means other than the regulator, or the slow and uncertain cycles of electoral democracy, to expose them to criticism.

This is no trivial matter. Policies now account for about 17% of the price to domestic households, in other words about £26/MWh of a total price to household consumers of £154/MWh (see the Committee on Climate Change Energy Prices and Bills). Median annual domestic electricity consumption in the UK is approximately 3.5 MWhs per household, so this amounted to about £91 per household per year, or roughly £2.4 billion a year, assuming 26 million households, a sum that greatly exceeds the £1.5 billion a year rip-off that prompted Mrs May to suggest a price cap.

According to the government’s estimates, in the now discontinued Estimated Impacts, we can see that this problem is set to grow dramatically. In 2020 the domestic price impact will have in all probability doubled, to £52/MWh, or about £180 a year on the electricity bill, a nationwide cost of about £5 billion per year.

Constrained by its remit, as set out by Ed Milibands Energy Act of 2010, Ofgem is powerless to comment on these enormous impositions. In essence, by being compelled to have regard to the interests of future consumers in the light of climate change the regulator has been absorbed by government and, like the Committee on Climate Change, made a mere cog wheel in the policy delivery mechanism. Consequently, and with the sole exception of the National Audit Office, there is no statutory body that has any interest in holding the government to account on climate policy costs, and none that is exclusively focused on the energy sector.

Restoring Ofgem’s Statutory Duties to their earlier free-ranging state could yield enormous benefits for the consumer. Such a reform should also be supported by electricity retailers, who, for all their faults, are carrying the can for climate policy related price increases over which they have no control. By contrast, a ‘reform’ of Ofgem that further weakened an already crippled body would be a disaster for all concerned.

https://www.thegwpf.com/fixing-ofgem-the-uks-gas-and-electricity-regulator/

Advertisements
27 Comments
  1. Joe Public permalink
    May 17, 2017 10:19 am

    Thanks for giving this story additional oxygen.

  2. Dung permalink
    May 17, 2017 10:26 am

    Great article!

    What with all that lot plus the Climate Change Act, I am surprised the UK econmy has not yet sunk without trace.

    • Gerry, England permalink
      May 17, 2017 1:04 pm

      Don’t worry, they are working on it. With May having no Brexit plan, business is preparing for the worst. European companies are looking within the EU to source what they currently buy from the UK, while UK companies are doing the same. Given that we get 30% of our food from the EU, we should be concerned that these suppliers are looking for other markets for their products to avoid any problems with customs and inspections when shipping to the UK. The worry is that even if – and it is a big if – something sensible does come out of the negotiations, companies may have advances so far that they complete the changes anyway.

  3. May 17, 2017 10:26 am

    You couldn’t put a piece of paper between Conservative and Labour policy on energy and climate change. Both parties as well as the civil service have been taken over by the Greenblob. It is difficult to see anything stopping the policies continuing (since the election won’t change policy or remove any of the green Conservative MPs) until all heavy industry has gone, the lights have gone out and there is civil unrest. Ofgem can’t do anything and the National Grid is happy to be well paid not to tell the Government how dire the situation is becoming for the people and the country.

    • HotScot permalink
      May 17, 2017 10:36 am

      I guess the solution is we all dress up like hippies and march on Westminster. It worked for the effing greens, why not us?

    • Derek Buxton permalink
      May 22, 2017 10:34 am

      In the first place the Dept of Business and climate Change offered our money as bribes to get “renewables” taking over. Funny how so many of them used it to fill their boots. In short, it was fraud on a global scale and those involved should be brought to account

  4. HotScot permalink
    May 17, 2017 10:35 am

    I have recently joined The Libertarian Party in the hope that we might eventually dispense with intrusive government meddling in our lives.

    ‘The tough is deep and wide from footsteps leading to our cabins’ – Son of Hickory Holler’s Tramp. MERLE HAGGARD.

    Close enough.

    • Jack Broughton permalink
      May 17, 2017 10:37 am

      The lamp above the door is in danger of being too expensive!

      • HotScot permalink
        May 17, 2017 10:54 am

        Indeed. 🙂

  5. Jack Broughton permalink
    May 17, 2017 10:35 am

    I must agree with Phillip Bratby that the UK is totally controlled by the “greenblob”. They have successfully stopped any debate on the climate issue and passed the responsibility on to civil servants who “Follow orders”. The problem is that the energy-system death is slow and financially is confused by world economy and Brexit changes. Only UKIP have a rational approach to energy, but I cannot bring myself to vote for them.

    The article reminds me of Mr. Bumble’s view of the Law, but costs us all a lot more.

    • Dung permalink
      May 17, 2017 10:59 am

      The more I see of May’s policies the more sure I am that UKIP will rise again and will do so faster than people think. I will vote UKIP because I can not bring myself to vote for any of the congenital idiots on offer elsewhere

      • Gerry, England permalink
        May 17, 2017 1:08 pm

        If Ukip could become an organized and competent party, there is a yawning gap to the right for a conservative party to fill the space left by Blue Labour. As far as the current GE goes – the so called Brexit election where everybody tries hard not to mention Brexit – I can’t support their policy. Unless the independent has some reasonable ideas I shall abstain.

  6. Max Sawyer permalink
    May 17, 2017 10:45 am

    Cost of “greenery” – carpet & brush.

  7. May 17, 2017 10:51 am

    I wonder how many “existing and future consumers” were canvassed by Ed Miliband in order to determine that they had interests in reducing “targeted greenhouse gases”. Is any body aware if consumers were asked if they were prepared to pay enormous bills to reduce the targeted greenhouse gases?

    • Jack Broughton permalink
      May 17, 2017 11:28 am

      Come on, you know the answer as well as anyone!!!

  8. 1saveenergy permalink
    May 17, 2017 11:29 am

    The 2008 Climate Change Act & the Energy Act of 2010 are acts of treason…. Ed Miliband should stand trial.

  9. May 17, 2017 11:51 am

    Why ‘ blame ‘ Ed Milliband ? The Tories have had 7 years to change the rules and have not done so. They must agree with them.
    I think it is time to get back to first principles. Our electricity supply is a National necessity.

    We used to run it by through Statutory bodies staffed by technical experts. We sold off the lot – the Grids, the power stations, the organisations.

    All of these have one obligation – to their shareholders. They may work within a series of Regulations and be made to follow rules such providing smart meters and installing insulation, and even being forced to buy a proportion of their electricity from renewable sources, but they can still do that and make a profit.

    But which Body or Authority is responsible for planning to make sure the lights stay on and the ongoing investment follows a balanced and sensible path to provide power where it is best located and of the right mix.
    Anyone who thinks that leaving all this to a ‘Market ‘ is living in a dream world.

    The problem simply is the assumption that the free market will work if we just tweek it as we go along when it is not working. We are running out of tweeks and now having to point a finger at the companies. Yet we forget that they are there to maximise their own profit.

    • Gerry, England permalink
      May 17, 2017 1:14 pm

      Given that all but 5 MPs voted for the Climate Change Act, the whole of parliament is guilty, not just Milliband. The liberal coalition were never going to change it, and neither will Blue Labour.

      As far as saying that the market doesn’t work, well we have never tried a free market so we have no idea how it would work. The energy market is government controlled and the energy companies – that’s real generating companies – make money as they can. The energy companies that are foreign owned could decide it is not worth being in our market and shut down operations. They are certainly not investing in new plant due to the financial risks created by government interference.

    • May 17, 2017 1:28 pm

      Privately-owned, but, arguably far more politically driven now than it was when it was state-owned. And driving it is a) the EU Renewable Energy Directive and b) the UK Climate Change Act. So, we must pay more and be ‘smart’. In fact, in a few years, no one will remember what the privatisation was meant to do (and was actually doing!).

    • Derek Buxton permalink
      May 22, 2017 10:38 am

      Almost the whole of the “conservative” MPs voted in favour of the stupid act of self destruction. I think only 4 or 5 had the backbone to see it for what it was.

  10. May 17, 2017 1:45 pm

    Meanwhile Fracking and Thorium molten salt Reactors are ignored.

  11. Derek Buxton permalink
    May 17, 2017 2:09 pm

    Interesting but irrelevant. The Climate Change Committee offer bribes in the form of our money to get them to build useless wind farms and solar panels, 3 to 4 times the wholesale price of energy, so who is surprised when businesses take advantage. It is not a price cap we need, it is a proper market so scrap the CCC and repeal the Climate Change Act

  12. May 17, 2017 2:51 pm

    Amazing that someone as useless as milliband can leave these time bombs in place to cause serious problems long after he’s retired to a Bahamian beach.

    • May 18, 2017 9:35 am

      You can blame Miliband for introducing it, but the Tories have been in power since 2010 with a completely free hand since 2015 and have done nothing to remedy the situation (except the recent minor trimming of subsidies for onshore wind & solar). On the contrary – they keep spouting the same climate change nonsense as Miliband.

      • Jack Broughton permalink
        May 22, 2017 10:48 am

        Isn’t the arch-deacon of the CCA one John Selwyn Gummer. Who have gained from the “unreliables” farce started??

  13. It doesn't add up... permalink
    May 17, 2017 9:50 pm

    This is an issue I first flagged up back in 2010 when the Miliband Energy Act was made law – it was rushed through in the “wash-up” before the election with no proper scrutiny in Parliament. It’s certainly a key essential if we are to see sensible energy policy. Foolishly, I thought that when OFGEM decided to let the Competition and Markets Authority review the operation of energy markets it was because it knew that OFGEM itself was unable to conduct the review adequately without breaching the 2010 Act, but the CMA could be more open. The CMA review failed to tackle the key questions. It’s now a mindset.

    • It doesn't add up... permalink
      May 17, 2017 10:15 pm

      P.S. In an act of defiance to consumer interests, OFGEM’s reaction to the CMA review was to replace its Supply Market Indicator, which supposedly tracked annual fuel bills for an “average” consumer in £, with an index, thus making any comparison with consumer bills quite impossible. They have increased the level of obfuscation in the market quite deliberately.

Comments are closed.

%d bloggers like this: