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CMA findings – Ofgem in the dock

It’s doubtful they expected this when calling for the CMA, Competition and Markets Authority, investigation into the workings of the energy market.

But Ofgem have found themselves in the CMA’s sights as aCMA logo root cause of the problems that exist within the market.

It has long been the suspicion of market participants that Ofgem were less of a solution and more of a problem for the smooth operation of the energy markets, reacting to the unimportant, whilst overlooking the critical.

One only needs to reflect on the failure by Ofgem to act on clear abuses under the objection window, which fundamentally compromised the switching market and efficient running of competition for nearly 10 years, against their incessant desire to re-categorise customers under a new, fancier definition, to see that Ofgem have long had their priorities at best ‘skewed’.

Damning though these failures were little was done by Ofgem to address their actions.

The CMA though have recognised these flaws in the very organisation that called them in.

One could surmise that it was potentially acceptable in Ofgem’s eyes for the CMA to find nothing wrong with market operation. What they certainly had neither expected or wanted was that the root cause of the failures in market operation would be laid at their own door.

That though is what has happened.

The CMA’s initial findings euphemistically reported:

“Several parties have submitted to us that elements of the codes system risk affecting competition either through distorting incentives, increasing barriers to entry or stifling innovation”

Anyone with experience of dealing with Ofgem will recognise these issues with a sympathetic ear.

The CMA announced a commitment to investigate whether Ofgem’s electricity regulation codes pose a barrier to entry, and whether their actions stifled pro-competitive innovation and change.

Yet the concern with which the CMA is viewing the regulator’s role does not stop there with the CMA set to alter its investigation to include a probe into all aspects of Ofgem’s market interaction including generation, losses and network operation costs.

The CMA pulled no punches saying:

“The supply of electricity and gas is heavily regulated, and the form that regulation takes has a profound effect on the shape of competition in retail energy markets. We have identified several elements of the regulatory regime that may have a potential impact on competition between suppliers to serve customers, and which we intend to investigate further.”

Ofgem’s Chief Executive, Dermot Nolan, when he referred the market Ofgem exist to regulate to the CMA had said that it was:

“An important opportunity to clear the air”

Clearly Nolan didn’t expect that clearing of the air to be a portent of storm clouds over Ofgem themselves.

Putting a brave face on the CMA’s assault on their capabilities Ofgem said:

“Ofgem is determined to make the energy market work and ensure that there is vigorous competition which bears down on prices and drives up standards of service.

“This is why we referred the market to the CMA last year to consider whether there are barriers to effective competition. We therefore welcome the updated issues statement published by the CMA.”

No we’re not convinced either, this is the last thing Ofgem either wanted or expected. That the CMA are able to preliminarily conclude that Ofgem themselves require investigation is a welcome confirmation of the independence and authority of the CMAs role.

Ofgem were right that the CMA investigation would herald the break up of the parties at the root of the industry’s problems. What they hadn’t expected was that they would be so squarely identified in that role.