Today Ofgem has written to suppliers to outline its response to current market conditions. It is difficult not to conclude that the regulator is inhabiting some strange alternative reality in which the usual rules of economics don’t apply – its proposals to consult on updating the price cap methodology with a view to implementing change in April are too little, too late.
As I set out in my recent post, I do not believe that Ofgem is meeting its statutory obligations under the Domestic Gas and Electricity (Tariff Cap) Act 2018, and in fact, allowing a situation where the cap is set at a level which forces suppliers to sell at a loss, means many suppliers are closing which also contradicts the obligations placed on Ofgem by the Utilities Act 2000, namely to regulate the market in a way which (where possible) promotes competition. Causing the number of suppliers to fall dramatically, potentially only to those who were or are incumbents in their home markets, seems to me to be the very opposite of what is envisaged under the Act.
Ofgem’s letter goes on to outline its desire to tighten up requirements for suppliers to demonstrate financial resillience and the fit and proper status of their senior managers. At this point it is reasonable to question whether Ofgem itself is fit and proper – I remain of the view that regulation of retail energy markets should be moved to the Financial Conduct Authority.
So, following the recent vogue for open letters, I have written one of my own to Ofgem, asking the regulator to explain why it is not using its powers under the price cap legislation to review the cap more frequently and maintain it at a level which meets all of the objectives set out in the Act. I have sent the letter under Ofgem’s complaints procedure which means I should receive a response sometime in the next month – hopefully I will be able to publish the response.
Here is my letter: