Agenda item

Mr Zak Rich (Senior Manager – Cross Sector, Ofgem) was in attendance for this item.

(1)     The Chairman welcomed Mr Rich, who delivered a presentation about the regulator Ofgem. The presentation covered:

·   The role of the regulator;

·   The evolving nature of the energy sector;

·   The future and challenges faced;

·   The Incentive on Connections Engagement (ICE)

(2)        Ofgem were in the process of consulting on their next pricing structure, RIIO-2. Mr Rich encouraged Members to respond to the consultation, even if just certain parts or questions.

(3)        Mr Rich discussed how the energy sector was evolving into a more complex system than in the past. Projections of energy use were not always predictable – for example, the use of solar PV was greatly underestimated which resulted in numerous complications for the sector.

(4)        The energy sector was experiencing an increase in “local energy” and “prosumers”, relatively new terms that referred to individuals and communities providing energy to each other. Not yet covered by legislation, there was a need to ensure such changes were regulated appropriately to ensure enduring consumer value.

(5)        Mr Rich discussed tools for engagement.

a.    The Incentive on Connections Engagement (ICE):

·   Distribution Network Operators (DNOs) were annually incentivised to provide good service to larger or more complex connection customers

·   DNOs had to submit evidence each year (May) that they engaged with stakeholders and responded to their needs – submissions comprise:

1.    Looking back - report on last year’s activities

2.    Looking forward - plans for activities in the next year

·   Ofgem consulted stakeholders (July) to inform their assessment and published responses

·   Ofgem were able to apply penalties where DNOs had not met the minimum criteria in respect of previous year’s performance.

·   https://www.linkedin.com/pulse/you-large-electricity-connections-customer-like-housing-khalif/

Ofgem encouraged stakeholders to:

·   engage with their local DNO to ensure that their requirements were taken into consideration

·   Respond to the Ofgem consultation in summer 2019

b.    Solvable through contractual approaches, eg Ebbsfleet model

·   Consortium SPV model

·   Working through planning processes and engagement with the local network

c.    The RIIO-2 consultation would be live until 14 March 2019

·   https://www.ofgem.gov.uk/publications-and-updates/riio-2-sector-specific-methodology-consultation

d.    Access/TCR Review

·   Review charging mechanisms

·   Future proposals included ‘shared access’: effectively sharing capacity behind a constraint.

(6)        Carolyn McKenzie noted that this related to a key issue for the Committee – finding a way for sites to be development ready without developers being required to invest upfront. It was common for the party connecting to the grid first to pay a majority of the costs for connection, with the second connector paying much less. As referenced under the tools for engagement, the Ebbsfleet development used a model where one party paid upfront, with connectors reimbursing the shared cost as and when they connected.

(7)        Carolyn McKenzie confirmed that officer engagement with Ofgem would continue on this issue and information would be made available to the Committee.

(8)         The Committee discussed Combined Heat and Power Systems (CHPs). Carolyn McKenzie advised that KCC had looked into this area and whether it could become an energy provider, but the cost of connecting to the grid was a major barrier. Mr Rich accepted the point but affirmed that the cost had to be met somehow, without charging existing customers unnecessarily as it was Ofgem’s view that existing customers should be protected against covering costs that bring them no benefit. It was an area that was being investigated and consulted on.

(9)        Members raised questions about the process when an energy provider ceases trading. Constituents had found they had been automatically assigned to another, much more expensive, provider. There was a lack of information available about this online, and Members felt engagement in this area needed to be improved. Mr Rich appreciated the concern but pointed out that it was Ofgem’s responsibility to ensure customers were assigned to a new provider, who in some cases may be offering higher tariffs as it may have been the case that the company that went out of business was not charging enough to cover their costs. Ofgem have introduced a price cap for suppliers.

(10)     Leading on from the above point, Members questioned the process of contracts ending, leading to the consumer being put onto a higher tariff unless they took action. It was highlighted that this may be difficult or more challenging for vulnerable customers. Mr Rich explained that the Government and Ofgem had worked on introducing a price cap but that it was undesirable to completely dictate pricing structures to commercial retailers. There needed to be market flexibility so customers, all with differing needs, had a choice. Ofgem were supporting regimes to encourage faster switching between retailers.

(11)     Members discussed KCC’s future role in the energy sector. Carolyn McKenzie advised that the local authority had investigated becoming an energy provider, but there was no guarantee it would be able to provide cheaper rates than others in the industry. KCC were looking at where renewables were being used and how this could feed into the wider estate.

(12)     Mr Rich spoke about Ofgem’s commitment to supporting new business models. The Innovation Hub allowed businesses to come up with fresh ideas which they could trial, even if it was not covered by regulation. Updates to the regulatory framework would be considered if the pilot was successful.

(13)     The Chairman thanked Mr Rich for attending, and invited Ofgem to attend future sessions of the Committee.

RESOLVED that the presentation be noted.