Utility Week

20 | MAY 2021 | UTILITY WEEK Policy & Regulation Analysis Is 'Nanny Ofgem' missing the bigger picture? The proposal to force energy suppliers to return credit balances to customers every 12 months is just the latest in a constant stream of 'tweaks' to energy regulation. Is it time for a new approach? Adam John reports. O fgem and, to be fair, the government need to understand you can't fix something that is broken by contin- ually bashing it with a hammer," says Chris Welby, former head of regulation at the now defunct municipal-owned Bristol Energy. Welby was writing in a blog that heavily criticised the regulator for its proposals to reform the way customer credit balances are managed. For Welby the proposals, which would see suppliers refund balances every 12 months, are another example of Ofgem "try- ing to treat the symptoms of an ailing market rather than addressing the root cause". Welby says he fully supports customers getting a refund if they are paying in excess of what is required, and adds that suppliers do return excess amounts either directly on request or by adjusting direct debit amounts to run down excess credits. "However, Nanny Ofgem now seems to think customers can't be trusted to look a…er their own affairs and is stepping in again," he says. Speaking to Utility Week, Welby high- lights how the regulatory landscape was initially set up to manage six large suppliers with "deep pockets", who needed to be man- aged as utilities. Times have since changed and suppliers are now much more retail- focused. Yet with prescriptive regulation, Welby believes energy retailers are required to spread themselves too thin. He explains: "It's difficult for players to differentiate themselves if they have this licence that requires them to be a jack of all trades to all customers. As a good example, it's difficult to be a niche prepayment meter provider when all your competitors have an obligation to offer prepayment meters." Piecemeal regulation Peter Haigh, Bristol Energy's former man- aging director, who was brought in by the council to help set up the supplier in 2015, also questions whether it is necessary to bring in new credit balance reforms. He says more regulation is not helpful. "I wouldn't use the word nannying, because Ofgem do try to do the right thing, but it's piecemeal. Customers have always had the right to have credit balances back, that's enshrined in the licence," says Haigh. He continues: "I also have believed for many years that a review of the cash flows in the market and where money is tied up with Elexon, with DNOs, with gas distribution, or whoever it might be, would be an incredibly useful exercise. And how that might be made much more efficient." He would prefer Ofgem consider a more principles-based approach to regulation, especially concerning newer entrants. This would involve fit and proper tests for direc- tors, ensuring suppliers had a coherent busi- ness plan with sources of funding. He says: "If they said: 'These are the prin- ciples that we are going to operate on as a retailer', then Ofgem has got something to hold them to from the get-go, rather than reverting to the licence. Second, it takes it up to that top level." Laura Sandys, chief executive of strategic consultancy Challenging Ideas, believes in an insurance-based approach towards regu- lation, which she highlights in her ReCosting Energy report. The report argues that insur- ance should be used to manage business failure risks that new companies pose to the system. New entrants could take out insur- ance as "learner drivers" that assesses their risk of failure. She further explains: "We need to start employing insurance products to protect consumers rather than these large deposits, which is wasted capital when risk can be assessed much more effectively by the insur- ance sector. "Learner drivers would pay a higher pre- mium until they showed that they were fit "

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