With the surprise announcement of another British general election due to take place on 8 June, Cornwall will be looking at the potential impacts of this across the energy industry over the coming weeks. To start this series we are looking at the impacts on OFGEM and regulation.
As a non-ministerial government body OFGEM is subject to purdah. This means that we are now not expecting any major decisions or developments from the regulator until after the election.
While this would be an issue at the best of times it is particularly important right now given the changes in train.
Most significantly we were expecting OFGEM’s final decision on the embedded benefit modifications CMP264/265 in May, which now looks certain to be pushed back. Given the persistent rumours that this would be folded into the target charging review (TCR) this delay seems likely to increase the chance of this rather than weaken it.
On top of this it is also likely to delay the start date of the TCR, expected Significant Code Review on mandatory half hourly settlement, and potentially the implementation of some of the Competition and Market Authority’s remedies.
One of the major battlegrounds of the election looks like it will be the potential for a wider domestic energy price cap, covering up to 70% of the market.
Under the proposals seen so far, it looks likely that if implemented this would see OFGEM responsible for administrating the cap.
This would be a significant expansion to the regulator’s role, and one which is likely to be a thankless task given the difficulties of correctly setting prices, the opposing forces trying to move the cap up or down and the blame inherent in being the organisation that decides to increase prices.
Potentially the largest change would be the merging of OFGEM with OFWAT to form a joint utility regulator.
This is idea which we have heard a number of whisperings on recently. At first glance there do seem to arguments in favour of this. With the opening of business water supply to competition there are a number of potential synergies that could be harnessed.
Additionally, Northern Ireland has shown this approach can work with its utility regulator responsible for electricity, gas, and water and sewerage.
However, merging two regulators like this, with both handling major ongoing changes to their sectors, would be a huge work-stream with numerous potential pitfalls.
All in all, while the delays from purdah will likely lead to a quiet month or two, the future looks set to be busy and exciting in the regulatory sphere no matter the outcome of the election.
ADAM BOORMAN is Senior Regulatory Analyst at Cornwall the energy market consultancy.
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