Ofgem director quits in protest at changes to price cap calculation

A board member of Ofgem has quit after accusing the energy regulator of prioritising companies over consumers.

Christine Farnish, a non-executive director at Ofgem, said she had resigned because the “regulator didn’t get the balance right and gave too much benefit to companies at the expense of consumers”. 

“It’s a judgment call. Answers aren’t particularly palatable but you want the interests of consumers to come first,” she said.

Farnish’s departure was sparked by Ofgem’s decision this month to change the way it calculates the energy price cap, an adjustment that analysts have warned could add hundreds of pounds to household bills.

Her resignation is a further blow to the beleaguered regulator, which has been heavily criticised by consumer groups, MPs and the National Audit Office over its handling of the energy crisis.

Ofgem said at the start of August that it was changing the methodology for the cap to enable suppliers to recoup the full costs of buying energy for their customers at current very high prices. The regulator insisted the changes were necessary to preventing more suppliers from going bust, after the costly failure of about 30 companies since the start of January 2021.

Analysts upgraded their estimates for the cap by hundreds of pounds following the revisions. Martin Young at Investec warned the tweaks would push the cap to around £4,200 a year in January, up from a previous estimate of £3,725. The cap is currently £1,971 a year based on the consumption of a typical household.

Other analysts have since revised their forecasts higher in light of the combination of the change to methodology and further increases in wholesale gas and electricity prices.

Ofgem confirmed the methodological changes at the same time as it announced it would update the price cap every three months as opposed to twice a year, which also sparked outcry from fuel poverty campaigners.

Ed Miliband MP, Labour’s shadow climate change and net zero secretary, said Farnish’s resignation was “further proof that the government is asleep at the wheel when it comes to the energy bills crisis”.

“We simply cannot allow the British people to suffer a further increase in bills.”

Farnish is a former chair of Consumer Focus as well as a former non-executive director at the water regulator Ofwat.

Ofgem said: “Due to this unprecedented energy crisis, Ofgem is having to make some incredibly difficult decisions where carefully balanced trade-offs are being weighed up all the time. But we always prioritise consumers’ needs both in the immediate and long term.

“The rest of the board decided a shorter recovery period for energy costs was in the best interest of consumers in the long term by reducing the very real risk of suppliers going bust, which would heap yet more costs on to bills and add unnecessary worry and concern at an already very difficult time.”

Ofgem has faced criticism after dozens of smaller suppliers folded in the past 18 months, adding more costs to household bills linked to the transfer of their customers to other companies.

Additional reporting by David Sheppard