Utility Week

UTILITY Week 24 10 2014

Utility Week - authoritative, impartial and essential reading for senior people within utilities, regulators and government

Issue link: https://fhpublishing.uberflip.com/i/401986

Contents of this Issue


Page 5 of 31

6 | 24th - 30th OctOber 2014 | UtILItY WeeK People & Opinion Crucial questions the CMA needs to address The energy market investigation can put some big questions to bed once and for all. Chief executive's view Dermot Nolan, Ofgem N ow that Ofgem has made its referral to the Competi- tion and Markets Author- ity (CMA), the energy market investigation is in process. In the midst of a situation where the role of the regulator itself has been questioned and examined, we welcome the prospect of the CMA pronouncing on the regula- tor's own role over the past few years. What do we want to see resulting from the investigation? We have some aspirational tar- gets. We want to see a competi- tive and dynamic market where the customer is somewhat more satisfied than they may currently be. We also want to see some definitive – or at least quasi- definitive – answers to some of the questions [about the electric- ity market's structure] that have been around for a period of time. The potential pros and cons of vertical integration are a huge source of public debate. Is this structure conducive to good con- sumer outcomes, or not? The question of incumbency, too, we would like to see put to bed. We would also obviously like to see a regulatory frame- work that protects the interests of consumers, removes barriers to competition and minimises disruption to investment. It has been questioned whether this process in itself has disrupted investment. We hold a fairly strong view that there is so much uncertainty around at the moment about the future of energy, that bringing a degree of clarity through this process is worth [any disruption caused]. In the meantime, what will we be doing? Much of our work relates to the Retail Market Review (RMR). Clearly this is not new. The RMR was launched a couple of years ago due to con- cerns that the market wasn't working effectively. A large set of rules were finalised and we have seen implementation this year. There were three mantras for RMR – clearer, simpler, fairer. Let's focus on the latter. The word "fair" represents ground on which, from a regulatory standpoint generally, we have not deigned to tread over the past ten to fieen years – for good reason. The word fair can mean very many different things to different people, and regula- tors have been shy of using it. Nonetheless, we have used it and embraced it. It has become a part of our tool kit. We want to make standards of conduct an important concept going for- ward. Through this approach we are seeking to balance a number of duties. Energy is an essential service, but at the same time, we believe that competition is the best way to deliver it. There has been a lot of criti- cism recently – which I under- stand without necessarily agreeing – saying that over the last few years Ofgem has become increasingly intrusive. We've applied a number of very spe- cific licence conditions and laid out in great detail what suppliers can and cannot do. As a result, I've heard people say that the actual supply licence has quad- rupled in size in five years. This is not the way we want to go. We do not want a supply licence which is intensely com- plex, specific and potentially limiting to innovation. That is not an appropriate way to let competition flourish. Instead, I would like to rely on standards of conduct, on principles-based regulation, where there is an underlying commitment to treat customers fairly. That is the challenge I place before energy companies. It will require chief executives to think long and hard about their actions. This is an abridged excerpt from Nolan's speech at the Utility Week Congress 2014. See next week's issue for a round-up of key points from the event. "If you put in so many interventions, you can expect the market to fail… The market is better at resource allocation than governments" Joan MacNaughton, executive chair, World Energy Trilemma for the World Energy Council, speaking at KPMG's Global Power and Utilities Conference £30bn Amount that could be injected into the UK economy by 2025 by revitalising the domestic supply chain, according to Pulling Together, a report from the cbI

Articles in this issue

Archives of this issue

view archives of Utility Week - UTILITY Week 24 10 2014