Utility Week

12 | 6TH - 12TH SEPTEMBER 2019 | UTILITY WEEK Policy & Regulation troversies about the price cap and the smart meter rollout aren't going away, and there could be added government pressure to drive down the cost of energy to reduce inflation if the UK ends up in a no deal scenario. However, those Utility Week spoke to felt the main challenge facing the new chief executive will be around redesigning regula- tion to suit the transition of the energy mar- ket. "Decarbonisation has finally made it on to Ofgem's agenda, but what role should Ofgem play?" was a common theme. Certainly anyone coming into the role will need an iron constitution. Since Nolan joined in March 2014 the political pres- sure has ratcheted up and this is unlikely to recede. Though he has been well regarded and well liked, such has been the directives from government, that some in the sector regard Ofgem under Nolan as having been unwit- tingly blown off course by the introduction of the price cap, with an embattled leadership sucked into choppy political waters. In Utility Week's 2018 chief executive survey nearly two-thirds (64 per cent) of chief executives across the utilities sector said the regulatory regime was not fit for purpose, up from 57 per cent the previous year. Nolan has been applauded for his commitment to help vulnerable customers – and has pushed that up the agenda, including his introducing the prepayment price cap in January 2016. "His whole way of working has seen vulnerable customers running through it – he would always ask what does that mean for vulnerable customers," says a former colleague. Others say he is well liked as a manager with a natural leadership style. When he gave a speech, people always warmed to him. He has also made his mark being rigorous and analytical – introducing an economic panel of independent experts. His approach to RIIO2, which will see the cost of capital capped at 4.3 per cent, is a mark of a tough regulator – though he will not see that through. Instead he was le› to see the fruits of RIIO the price control review that was already cemented when he came on board – resulting in double digit returns for network operators and consequently plans by Labour for their nationalisation on the back of unchecked profits – and criticism of Ofwat for not being tough enough. In terms of other issues, insiders say he is likely to be disappointed by Ofgem's role in the so-called "Ash for Cash" scandal that brought down the devolved Northern Ireland government. It is likely that the inquiry, which opened in November 2017 and is due to publish its findings this autumn, will call out Ofgem for not doing enough to flag up the risk of fraudulent behaviour to officials in Northern Ireland's Assembly. The abuse of the renewable heat incentive scheme cost the taxpayer more than £500 million. Though the mess didn't necessarily unfold on his watch (it was suspended in May 2016), Nolan has been called to give evidence. "It is difficult for him because of the way he cares about members of staff," says one close to the issue. The price cap However, what he will inevitably be remembered for is the introduction of the standard variable tariff (SVT) price cap in January 2019 – four years a›er Ofgem pledged to bring an end to prescriptive, restrictive regulation in the energy sector and instead adopt a principles-based regime, under which companies would be trusted to do the right thing by consumers while competing freely and creatively. The measure was foisted on Ofgem – it was a manifesto pledge in the 2017 election. But the introduction of the price cap and other interventions have given rise to charges that Ofgem is meddling. One senior retailer complains: "Ofgem is at its best when it's doing least. Ofgem tries to tightly define how markets will work – and can be heavy-handed – as is the case with the smart meter rollout. What's needed is a strong invisible hand – but what we have is a rather weak, reactive one. We need less regulation but regulation that is clear and effective. As it is, I would say Ofgem is guilty of lots of meddling." He cites examples, saying: "It is encouraging consumers to switch to the Analysis The most difficult challenge for a new chief executive is coming up with strategy to transform the entire energy system while the clock is ticking and there's a tight lid on costs. The decision makers Rosie Glazebrook: Civil Service Commissioner and chair of the panel – who has a sales and marketing background in media, data and health organisations and has particular interests in strategy, governance, data, ethics and business development. The five members of the panel charged with choosing the next chief executive of Ofgem. Stephen Carter: Group chief executive, Informa, and Baron Carter of Barnes, CBE, is a Scottish businessman and politician. He started his career as chief executive of J Walter Thompson UK & Ireland and in 2003 became the founding chief executive of Ofcom. continued from previous page

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