I'm old enough to remember a time before Sid hissed and the UK gas monopoly was broken up. I also remember when the twelve regional electricity companies
were privatised and we were all given the opportunity "to buy into what we plug into" by buying shares in the new provider companies..
As part of an era of letting a thousand flowers bloom we saw companies rise and blossom (mainly by selling super-cheap gas that didn't really exist).
More recently we've seen thirty of those flowers die for a variety of reasons.. Some of those reasons may seem unusual given it's a regulated market. Questions in the press and from parliamentary sub-committees asking whether Ofgem has been asleep at the wheel remain valid but unanswered.
The losses associated with those thirty failed businesses has been estimated at £2..4 billion. Those losses have been mutualised across the remaining suppliers in the sector. Indirectly, this is being passed on to you and me as well as the commercial consumers of electricity. This accounts in part, for the massively increased fuel bills dropping through letterboxes across the country in recent weeks. The Times estimated this has cost each domestic customer for energy £94.
It's hard to reach any other conclusion that the energy market is currently broken. However, a case can be made that it's been broken for some time and the regulator is doing precious little to improve things. In fact, they may be actively making the situation worse.
The monopolistic supply of energy was a victim of an unresponsive 1970's public sector provision addressed through Conservative political ideology through the 1980s resulting in the privatisation of the UK electricity supply market in 1990.
However level headed it may have appeared to buy shares at that time, I doubt anyone thought we would end up in the current state of affairs. One where any man and his dog was able to set up an energy company with no thought of whether you might actually know your electrical gluteus maximus from your supplier's humorous.
Worse still, the regulator appears to be as much use as a one legged man in an arse kicking competition having gone completely native.
At present. they appear to be ignoring customers and their champions while giving close attention to the needs of the industry. That's the same industry that hasn't been effectively regulated and is now ramping up your direct debits.
I doubt many of you will have been watching the Parliamentary sub committee for energy recently. It's not exactly Killing Eve, though for my money at least one witness died a slow and painful death under the questioning of the committee.
The terms of Parliament TV prevents me from editing or clipping the video but skip to time index 01:59:00 to see just what checks were made for the Chief Executive of Avro. (Spoiler alert - no fit and proper test was applied, because until recently none was required.).
It took the likes of Martin Lewis (money saving expert uk) to point out to Ofgem that there were handing out supplier licenses like free copies of the Metro. Only after that (well after the thousand flowers had set up and started charging us) did it seem appropriate to check if the person running the company was fit so to do.
I must admit a certain degree of schadenfreude when listening to Avro's former Chief Executive getting picked apart as I was one of those unfortunate enough to be their customer.
Having been overcharged and after excess direct debits were taken by the company I complained and requested a refund of £400 credit as is permitted under their supply license. It was clear I knew more about the terms of their license than they did. To say they didn't appear to know their way out of a paper bag over complicates paper bags
It appears from the interview above that the Chief Exec spent great care setting up an elaborate management company that charged roughly £500.000 for his services to Avro. However, the same evidence suggests he didn't understand the concept of business accounts or their own published results. That begs the question how was the company run and exactly when did it become insolvent? Questions a regulator might turn their mind to - and maybe, just maybe investigate.
Though hardly conclusive proof, I do have experience of complaining to the regulator. When I complained to Ofgem, I received no interest from the regulator at all. The then Chief Executive (Mr Nolan) didn't even reply to an email alerting him to apparent breaches of the license conditions. Customer protection certainly didn't appear to be on their radar. It seems little has changed since then.
Recognise these? This is a smart meter. You know the ones that supposedly help so much in saving you cash.
This one is a Bristol Energy meter. They, along with Nottingham City council dipped their toes in the energy supply market for a while. It wasn't a venture without incident. Bristol energy ceased trading and merged with an existing supplier. Robin Hood energy (Nottingham City Council) also ceased trading moving their customers to one of the big six in 2021. Robin Hood Energy exited the market shortly afterwards (their supply licence being revoked by Ofgem in April of the same year).
Of course, what the council tax payers who will have subsidised this foray into energy supply think about the ventures I cannot say. Whether it is appropriate for councils to become energy suppliers is a question I'll leave to others.
The introduction of smart meters formed part of the reform of the electricity market undertaken by the Department of Energy and Climate Change (DECC). They were also responsible for setting the framework for the thousand flowers era failing to require any fit and proper tests on prospective suppliers.
Smart meters should have been rolled out by now, indeed they could have been had the rollout been mandated, but it wasn't.
Many can see what's in them for the suppliers (no need to read meters saving on the cost of meter readers, the ability to manage demand at a far more granular level, potentially the ability to shut down or 'manage' supply remotely etc). What is unclear is what's in it for the customer? Well the big sell was no need to read and supply meter readings any more, accurate and timely energy consumption and easy switching between suppliers.
The problem is those aren't working out well for everyone.
The original meters aren't compatible with the later versions and not all suppliers who should be offering the new meters are - some are still handing out the old incompatible versions. This means when you swap supplier you have no guarantee that the smooth change over will be smooth. Even when the meters are the same the supplier hand over process is largely pot lot.
Most recently after recent price rises, some suppliers are sending out estimated bills - that's even where smart meters are in place. - Why might they be doing that - it's almost like the estimate might get you paying for more energy than you've actually used. I even know of examples of customers being told to go and read their smart meters so the energy company can send out an accurate bill. So much money clearly well spent and an example of great programme management. My refusal to move to one until the sector and regulator get their collective acts together is now not looking quite so Luddite.
Of course, Ofgem isn't responsible for setting the original framework up for the era of minimal checks and for poor decisions over smart meters. Much of that would fall at the door of the Department of Energy and Climate Control.
Interestingly, the director of electricity markets and networks at the Department of Energy and Climate Change (DECC) led the delivery of the Governments’ Electricity Market Reform (EMR) programme.
Given the mess we're in now, you might say it wasn't his or her finest hour. So who was that director?
Well, that would be Mr Jonathan Brearley who left that organisation and is now Chief Executive of (no it couldn't be could it) - yes, Ofgem.
So surely, with that background and insight, the regulator must have tackled some of these problems.
Some might consider the arrangements and payments described in the Parliament TV committee above worthy of criminal investigation.
According to evidence given at the select committee, at the very time the company was failing it appears that 'shed loads' of cash were exiting the company for specialist services. These were provided by the management company that also provided the Chief executive to Avro. The directors of that management company being the father of the Avro CEO. An interesting model when the company appears to have been having difficulty trading.
In situations such as this, you might think a regulator might wish to check that the services billed were provided and to a standard that might reasonably be expected - to remove any question of allegations of (can't remember the word, something to do with dodgy cash, starts with an f) - no, much like that money it's gone.
More generally and with no particular supplier in mind, Ofgem has the power to launch prosecutions for certain offences or could launch a joint investigation with the police or Serious Fraud Office in cases of more severe criminality or dodgy dealing.
You might anticipate a regulator looking out for customers and with an interest in maintaining a functioning market would have launched some criminal investigation or prosecutions over the last five years given the revelations of the past 12-18 months.
I can see plenty of evidence of fines for regulatory breaches but so far I can't find any criminal prosecutions by Ofgem in this space over the last five years. It all has an overly cosy feel doesn't it? I wonder who is keeping the power companies in check if not the regulator? Does the regulator have any interest in its prosecutorial function or the capabilities needed to run one?
If not, and if the industry reach the same conclusion to that question that I have, then the regulator charged with protecting consumers (among other things) has removed its own teeth in favour of asking people to play nicely.
Now, in the teeth of the worst cost of living crisis for decades, Ofgem has
announced that it will be recommending that the price cap should be reviewed every three months rather than every six months.
At first you may think that sounds like a good thing, However, here's what Martin Lewis thinks of the idea.
Mr Lewis felt it necessary to apologise for f-bombing Ofgem in a recent meeting. He subsequently said he didn't wish to criticise individuals but that institutionally the organisation was a disgrace.
I too don't level any criticism at the middle managers, professionals and employees of Ofgem who are working in what is clearly a struggling and some might say dysfunctional structure.
The question I'm left asking is the same question Martin Lewis asks later in the same interview broadcast on LBC in May 2022.
Ofgem appears to believe you can either have a free market with competition or you can have regulation. It's as if this was a binary choice.
At present we have the worst of both worlds. A series of large companies (the big six) and a regulator locking in customers to them. Further by introducing payments of 85% of the hedging difference between suppliers on switching and enforcing a more rapidly adjusting price cap they are effectively ending competition and the entry of new players into the market. In effect they are enforcing an oligopoly.
Given this, what is the purpose of privatisation and by extension what is the purpose of Ofgem? A regulator frightened to prosecute, deaf to consumers and so close to the large suppliers is neither use nor ornament.
What can be done? Well, we could start by writing to our MPs and demanding that Ofgem does not implement the changes it is currently proposing. Whether the organisation is fit for purpose must now be an open question.
It may be possible to bring competition to the energy market as the Conservatives believed. However that requires active and informed regulation with the consumer at the heart of regulatory considerations. Without that there is no competition and in the absence of competition the call to nationalise (possibly through a not for profit corporate model) must be growing. Ofgem - in a fixed price oligopoly where you stifle competition and effectively bar new entrants, what exactly are you there for?