Ofgem publishes first consumer impact report

Maureen Paul

Maureen Paul

Head of analytical strategy and head of economics community
27th June 2018
Areas covered:
Consumers
Corporate
A child and her grandmother under covers, their smiling faces lit up by a screen.
From offices in London, Glasgow and Cardiff, our staff work tirelessly to protect the interests of Britain’s gas and electricity consumers.

 

Ofgem is an independent regulator but as a public body, we report to Government.

Unlike most other public bodies, our funding comes not from the taxpayer but the energy suppliers and network companies we regulate.

These costs are passed on to energy bills, which means that ultimately consumers fund our work. 

Because we are a public body, funded by the very people we exist to protect, we try to be as transparent and accountable about our work as possible.

Last year, we gave a commitment in our “Forward Work Programme”, which outlines our work programme for the coming year, to carry out an annual assessment of the expected impact of some of our key decisions on consumers.

Today, we have delivered on that commitment by publishing our maiden “consumer impact report”.

An Ofgem first

These annual assessments measure both the quantifiable (for example, how much money our decisions have saved consumers) as well as the harder to measure unquantifiable impacts (non-financial benefits, such as boosting consumer confidence in the energy market) of some of our decisions.

Like other regulators and government departments, we already publish individual “impact assessments” which quantify the expected financial benefits and costs to industry and consumers of significant decisions. Woman filling kettle at the sink.

But Ofgem has become the first regulator in the UK to assess the overall impact on consumers of its key decisions, covering networks and the retail and wholesale energy markets, in one overarching annual report.

This follows on from similar reporting already carried out by the competition body, the Competition and Markets Authority, as well as the National Audit Office.

Reports help us deliver value for money

It’s right that as a public body, we are able to publicly demonstrate how we deliver value for money.

But these annual assessments go beyond making Ofgem more transparent, important as this is.

They will help us to deliver even better value for consumers by improving our internal decision-making process.

These quantitative and qualitative assessments of the impacts of our key decisions will help us understand how well we are delivering against our five strategic consumer outcomes, making sure we deliver value for money.

The consumer impact report will sit alongside our annual report, which examines our work to improve the market for energy consumers over the previous year, as well as our forward looking Forward Work Programme.

Ofgem delivers £7.8 billion in consumer benefits

So what is the verdict of our consumer impact report published today?

It found that every £1 spent by us in the last financial year April 2017- March 2018 is expected to deliver direct benefits of £87 to consumers, or over £7.8 billion in total.

This figure is based on certain key decisions we made last year, including a number of enforcement and compliance actions as well as around network charges.

These decisions include our extension of the safeguard tariff to 1 million vulnerable customers in February this year to protect them from being overcharged.

We estimate that these customers will save around £128 million in two years as a result of this extension of the safeguard tariff.

Changes we made last year to the charging arrangements for smaller embedded generators, such as diesel generators, are expected to benefit consumers almost £7.6 billion between 2021 and 2034, accounting for much of the overall expected benefits for last year.

Feedback welcome

We also assessed non-financial benefits from our decisions; for example, our changes to the price comparison website Confidence Code last year.

We found these helped build consumer confidence to receive an independent, transparent, accurate and reliable service from these websites, encouraging people to switch and boost competition in the retail market.

You can find more details in the report, which has been independently reviewed.

This is the first time we have published a Consumer Impact Report. We intend to publish a similar report every year from now on, and we welcome your feedback and comments.

Please get in touch at chief.economist@ofgem.gov.uk.

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