Utility Week

The Month in Review Brearley Pinchbeck 6 | JUNE 2022 | UTILITY WEEK "For years, some have argued that you cannot move to a low-carbon and renewable energy system and at the same time keep costs down for consumers. I have to say that that argument no longer holds weight – the economics of energy have fundamentally changed." Ofgem chief executive Jonathan Brearley The Month in Review O fgem is pressing ahead with proposals to shorten the price cap period from six months to three to reduce the time lag between changes in wholesale energy prices and their reflection in the cap. The regulator said its minded-to decision, which is subject to consultation, would allow suppliers to more accu- rately predict how much energy they need to purchase, reducing the risk of further failures. It said customers would also experi- ence the benefits much sooner when prices fall from their cur- rent record highs. The changes would addition- ally see a reduced notice period for adjustments to the cap level, currently set at two months from announcement to implementa- tion. Ofgem has proposed to reduce this period to 30 working days – five working days will be used for Ofgem to update the cap level, with suppliers then given 25 working days to update systems and notify customers. Ofgem opts to move to quarterly price cap "[This] proposed change would mean the price cap is more reflective of current market prices and any price falls would be delivered more quickly to consumers. "It would also help energy suppliers better predict how much energy they need to purchase for their customers, reducing the risk of further sup- plier failures, which ultimately pushes up costs for consumers. "The last year has shown that we need to make changes to the price cap so that suppliers are better able to manage risks in these unprecedented market conditions." Ofgem has also published a separate consultation which is seeking views on whether sup- pliers are incurring additional wholesale costs, beyond existing allowances in the cap in summer 2022 and winter 2022 as a result of wholesale price volatility. See comment, p21 Adam John, senior reporter Under the new system, a†er the next price cap period comes into force on 1 October the regulator will make a further announcement towards the end of November for the follow- ing period which will begin on 1 January 2023. Furthermore, the regulator is proposing to alter the wholesale methodology to include back- wardation costs, where short- term market prices are higher than over the long run. Costs above a £9 "deadband" (£4 for electricity and £5 for gas) would be recovered over 12 months from the start of the correspond- ing cap period. Ofgem estimated that the overall effect of these changes would be to reduce volume risk by approximately 60%. The regulator's chief execu- tive, Jonathan Brearley, said: "Our retail reforms will ensure that consumers are paying a fair price for their energy while ensuring resilience across the sector. Ofwat chair prioritises overflows and resilience Newly confirmed chair of Ofwat Iain Coucher has set out his priorities for Ofwat, which include improving environmental performance and boosting companies' financial resilience. The Department for Envi- ronment, Food & Rural Affairs confirmed that Coucher will succeed Jonson Cox as chair of the water regulator from July a†er being named as pre- ferred candidate last month. Coucher said his four priorities for the water regu- lator are to improve water companies' environmental performance, including the use of storm water overflows; ensure financial resilience of companies across the sector; take a long-term approach to deliver infrastructure, operational performance and other improvements that will address the impacts of climate change and urbani- sation; and make sure PR24 delivers for all stakeholders including customers, inves- tors and the environment. He will succeed Jonson Cox, whose tenure will end on 30 June a†er a decade in the post. Coucher will take up the position on 1 July for a term of four years and joins the regulator as it prepares to publish the dra† framework for the PR24 price review for 2025-2030.

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