Ofgem’s price control ‘heading in the right direction’

Ofgem’s current price control model is heading in the right direction.

That’s the view of Alistair Buchanan, Chairman of UK Power and Utilities at KPMG who believes the RIIO framework (Revenue, Incentive, Innovation and Output) is pushing towards more innovation and more incentives.

RIIO, which was initially spearheaded by Mr Buchanan when he led Ofgem for 10 years, sets price controls for network companies.

Speaking to ELN at a London event he said: “They have been concerned to make sure the companies stay under pressure so they’ve asked National Grid to come in and answer a few additional questions at the four-year mark of the eight-year price control.”

Mr Buchanan also believes the regulator is now focused on getting customers to switch to save money.

He went on: “In the last three years we’ve seen electricity prices for example fall from £65/MWh to £35/MWh and therefore that consumer pressure that was very much part of my life when I was at Ofgem has dissipated quite a lot. That’s not to say that consumers aren’t worried about prices, they still are but that upward pressure that was there from 2004 all the way through to 2012 has gone away.”

When questioned about the Competition and Markets Authority’s (CMA) final report due to be launched later this month he said: “There is controversy as you know in their initial findings. There are a lot of people who are unhappy about the prepay meter issue where they’re going to re-regulate for a number of years. That’s caused a lot of questions within the industry about ‘are we a market or are we regulated? What is going on here?’

“I think when we look at the final ruling, that’s the area where these five million customers on prepayment meters, they’re going to want to know whether they’re going to be protected by regulation or protected by the market.”

The CMA’s draft report launched in March revealed households have been paying around £1.7 billion a year more on their energy bills.

It also suggested a temporary safeguard price control to be set until 2020 to protect customers on prepayment meters which would reduce their bills by a total of £300 million a year.