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Policy & Regulation 14 | 1ST - 7TH APRIL 2016 | UTILITY WEEK Analysis I n the wake of the Competition and Mar- kets Authority's (CMA) provisional find- ings report published last month, the energy industry is talking, and one of the hot topics under discussion is Ofgem. There are question marks over how the regulator will meet and fund the requirements laid out by the CMA. The list of remedies could drastically shake up how the regulator oper- ates, and includes an Ofgem-controlled data- base of shared customer data and changes to the Debt Assignment Protocol (DAP). Ofgem is also having to trim its cloth in the shape of budgetary cutbacks – led by the gov- ernment and its spending reviews. The regu- lator's budget for the next five years is being cut by around 10 per cent, so the fact the CMA is saddling it with additional responsibilities presents Ofgem with an even bigger challenge. With the potential for so many changes to the regulator in this age of austerity, Utility Week asks, how well placed is Ofgem to implement the CMA's remedies? Ofgem-controlled database The data sharing remedy would require energy suppliers to disclose to Ofgem details of domestic customers who have been on a standard variable tariff (SVT) for three or more years in a bid to engage those custom- ers. The report recommends Ofgem retains, uses and discloses this data via a centrally managed database. This has raised questions about how the database would be set up, the difficulties in facilitating such a large data-led operation and how it would be funded. Chief executive of the Energy Managers Association, Lord Redesdale, tells Utility Week the difficulties of the database could be more than just cost: "Ofgem doesn't have the capability to put a cloud-based system together – it does sound like a really expensive proposition, doesn't it? "Interestingly enough, how many of the energy companies actually know who their customers are at any one given time? It feels like it will change and then there could be hundreds of thousands of people suddenly switching." Changes to the DAP The CMA says Ofgem should have until the end of 2016 to implement changes to the DAP that the regulator is currently developing with the industry. Some changes – including increasing the debt threshold at which cus- tomers can still switch from £250 to £500 – have already been taken on board by many suppliers. Ofgem is seeing its budget fall from £89.5 million in 2015/16 to £82 million in 2020/21 and it has even acknowledged that achiev- ing the efficiency savings that government requires of it, while maintaining its high standards, is a "challenging target". This was before the CMA set out the extra responsi- bilities and changes to existing programmes, such as the DAP. Adding in the relatively short timeframe for these changes – the final CMA results are published in June – means the regulator will only have six months to ensure the changes are in place. This adds to Ofgem's challenge to ensure the new DAP is fully functioning and implemented by all the current 37 suppli- ers, as well as any additional new entrants. Overall, there is some scepticism about Ofgem's ability to action the CMA's remedies effectively. Barriers such as timescales and costs could be of significant detriment to its new regulatory responsibilities. Redesdale says: "I think the funny thing about it is, in the past the regulators would have taken this on as their responsibility but now they will probably get other people to do it for them. "There is a lot in there for Ofgem to imple- ment and it is not as if they are swimming in cash. They are going to get cut in the same way that everybody else is." Ofgem has been given a three-week time- frame for its consultation with the CMA and is expected to respond by the middle of April – setting out whether it agrees and how it proposes to achieve the suggested remedies. The nation is tightening its belt aer chancellor George Osborne's latest budget announcement and the energy industry was not spared from the cuts. The Department of Energy and Climate Change is set to lose almost an eighth of its workforce, begging the question, where is Ofgem going to get the money to make all these changes? Redesdale says: "I suppose what they are going to have to do is offset this with third parties, but then who picks up the tab for that?" Mountain to climb for Ofgem In the context of budgetary cutbacks and a short timeframe, Ofgem has got its work cut out to implement the recommendations of the CMA's investigation into the energy market, says Saffron Johnson. "The CMA package of remedies, combined with smart meters and faster switching, should clear the way to secure a new and better deal for consumers. We will now work closely with the CMA on how these proposed remedies should be implemented to ensure that consumers get the full benefits." Dermot Nolan, chief executive, Ofgem OFGEM'S EXPENDITURE Year £ million 2015/16 planned 89.5 2016/17 88.7 2017/18 87.8 2018/19 83.9 2019/20 82.0 2020/21 82.0 Source: Ofgem Forward Work Plan: 2016-17