As the Guardian note today:
A director at energy regulator Ofgem has resigned, accusing it of favouring businesses over consumers with a rule change that will add as much as £400 to the average UK household energy bill.
Christine Farnish, a non-executive member of the Gas and Electricity Markets Authority (Gema), Ofgem's board, tendered her resignation to the business secretary, Kwasi Kwarteng, in early August.
Farnish said the regulator “gave too much benefit to companies at the expense of consumers”, according to a leaked internal Ofgem announcement. Across the UK's 27m retail energy customers a £400 annual bills increase could cost households more than £10bn.
The bias of Ofgem towards companies by insisting that energy be sold at the marginal cost of the highest cost producer has been a long-running theme on this blog and is discussed in Surviving 2023.
It is nice to see that the policy, and its cost, has finally caused a resignation in revulsion at its imposition on a vulnerable population.
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I wonder what the late Professor John Hills would have to say about this – he worked with the Tories and Lib Dems in 2012 to look at fuel poverty.
As ever, these Tories have lost the ability to listen to experts and balance needs.
This is a proxy government for rentiers only.
Respect to Christine Farnish though this has been obvious for a while. Whether energy, water or financial services, regulation has utterly failed, favouring businesses over the wider population and business. One can argue that they are handicapped by the greater funding and legal resources lined up against those regulators but it is no excuse. It is market failure on a grand scale.
Either they have to be regulated in the public interest with targets and proportionate fines for failure, or they need to be in public ownership.
With respect to public ownership (and I must shamefully admit that I haven’t yet had time to read Surviving 2023, so my apologies if it renders superfluous the document linked to below), what thoughts do we have in this place on Andrew Fisher’s proposals for purchasing the retail and distribution aspects of the current energy market, as detailed below?
https://www.opendemocracy.net/en/andrew-fisher-labour-nationalise-energy-national-grid-privatisation/
I suggest that if there was a market in energy it has failed
In that case nationalisation is a cost to guarantee supply
It need cost the tax payer nothing: the BoE could fund this with the profit to banks being constrained as I describe in Surviving 2023 and with any gains being subject to higher rates of tax, as a financial described.
Very much so. Much of our institutional/governance reform over recent years might be characterised as disguised government-sponsored private exploitation of what should be publicly owned natural monopolies.
‘We are protecting you’ OfWat Ofgen etc. They have protected the accumulation of private debt, creaming off ‘profit’ to often foreign owners instead of investment , sewage dumping, inventing ‘markets’ and ‘competing companies’ where no market exists.
Almost Orwellian
Am I being niave or would a simple change of the calculation to say the mean cost rather than the highest be the first step in solving fuel poverty? And if Ofgem won’t cooperate?
Mean would help
Sack Ofgem
Mean cost would mean the more expensive producers stop producing gas (which would be at a loss), reducing supply and hence increasing prices.
No they wouldn’t because Ofgem could aggregate supply sources to pay marginal cost to each to create a mean aggregate total
It really is not hard to work out unless you really are stupid
Prof Micheal Grubb in Brussels (2016): “the energy companies (generators) have sweated their assets and failed to invest”.
Grubb was Ofgem’s Senior Advisor, initially on Sustainable Energy Policy, and subsequently Improving Regulation.
The idea that Ofgem ever regulated for UK serfs is laughable. Furthermore, when I was in close contact with the org (circa 2010) it employed exactly………one…….engineer. Thus is lacked the expertise to regulate a sector that at its core is engineering driven. Pathetic does not even get close to the situation.
DNO engineers crowing to me how they had “sorted out Ofgem” (not surprising – they knew far more about their business than Ofgem ever could. )
So, a tory-vulture designed shambles.
Factlet: before privatisation DNOs spent a reasonable amount of money on R&D (many millions) – post 1990 spending went to…..exactly zero. That had a serious knock-on effect & was only remedied around 2005 (only 15 years) when Ofgem “recognised” that something needed to be done. Markets eh.
hi Richard,
thank you for your work. it is very difficult to find information in the public domain about energy pricing and the rationale behind it.
I noticed there was a government consultation that closed in November 2021 about electricity auctions and cross border trade, the results of which do not appear to have been published.
There is now a mammoth open consultation :
https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/1098100/review-electricity-market-arrangements.pdf – and, stupid government double speak aside, this invites views on moving away from marginal pricing (Q21 page 73) which might be of interest
cheers
Paul
Thanks
According to The Guardian politics live blog yesterday Rishi Sunak spoke about “major reforms we need to make to the energy market” as renewable energy is tied to gas prices.
He said “That is how our market works, it looks at who has got the highest price and, right now, because of a war it is natural gas, and we have to pay everyone else that price. That is not right and we need to reform our market to break that link. If we can do that, it will significantly lower wholesale electricity prices for all of the people that you spoke about and all of us.”
Maybe he has been reading Surviving 2023.
I can hope
I wish there were more like her.
Do we really need all of these Of.. whatever names, OfCom, OfGem etc.
They should all be under one name – Ofcon.