Ofgem reviews regulation approach

Ofgem is reviewing its approach to regulating the market for the first time in 20 years. The two-year review will question whether its current approach will still benefit consumers in the current climate.

The review will be led by Steve Smith, managing director of its networks division, and he will report to Ofgem chairman Sir John Mogg and the governing board in summer 2010.

Ofgem chief executive Alistair Buchanan says: “We need to know the regime can promote innovation from the companies at the level that it is required for the future.”

The regulator says the energy market faces costly challenges ahead, including proposals for a greater power network connection in Europe and a greater emphasis on small-scale distributed generation, as well as a growth in gas imports.

Energy companies are facing mounting pressure to meet the Government’s green targets and have recently been criticised for their lack of attention to the fuel poor. Five of the “big six” energy suppliers raised their prices this year, by an average of 15%. The Department for Business, Enterprise and Regulatory reform has set up a committee, which is currently investigating the energy market.

Buchanan adds that “mounting influences” may take the existing price control format into “territory for which it was not designed”.

The regulator says that the review should not be taken as critical of the role of existing rules. Buchaman says: “The current regime has delivered much greater efficiency from the network operators, with better quality of service, improved reliability and lower costs to customers.”