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Ofgem Finally Face the Reality of their Failings

Dermot Nolan Chief Executive of Ofgem has underlined the depth of the malaise in the energy market affecting the regulator, suppliers and long-suffering customers.

Nolan laid bare the failures of Ofgem admitting:

“A relatively senior public figure once said to me that the actions of the regulator five years ago were essentially saying to consumers: ‘There is a market, you can switch, now sod off.’

“I don’t think that in itself was quite fair, but nonetheless that view was there.

“We said we were about competition, you can switch, no problems.

“We had this theoretical idea in our head that competition would work perfectly and it would drive away all the inefficiencies. In the last few years, that broke down somewhat.”

Although Nolan claims the attitude of Ofgem has changed and their awareness and understanding of the market they regulate increased, the engagement of customers they are duty bound to serve has not, with Nolan admitting:

“The people who switch a lot, the bigger companies have reduced prices for them. The 60 per cent of people on standard variable tariffs — very few of the bigger companies have changed those at all for incumbent customers. They feel that 50 to 60 per cent of that rump are not that engaged in the market.

“It’s a perfectly rational commercial decision, but it’s something wrong. It can’t be a long-run solution if 60 per cent of people never switch and don’t feel engaged. That is why things have to change.”

Many would say that this apparent moment of epiphany with the regulator better understanding their market should have been something that was engrained in the organisation from birth. That it was not will surprise few in the market.

The irony remains however that at the point that Ofgem have ceded ‘control’ of the energy market to the CMA (Competition and Markets Authority) investigation they finally seem to be waking up to their role and responsibilities. That it has perhaps come too late to save the regulator from destruction in its current form is nobody’s fault but their own.