Ofgem regulator resigns over 'anti-competitive' pricing proposals

The Times
June 13, 2009
Robin Pagnamenta, Energy and Environment Editor

One of Britain's leading energy market regulators has resigned abruptly from Ofgem, the industry watchdog, after a pricing dispute.
George Yarrow stepped down after a disagreement over the regulator's decision to force energy companies to scrap regional pricing in the UK.
Ofgem initiated an investigation into competition in Britain's gas and electricity markets last year after a string of steep retail price increases left consumers facing soaring gas and electricity bills.
One of the changes Ofgem has proposed is to abolish “unfair pricing” — different charging structures levied on consumers depending on where they live — unless these can be justified on the ground of cost.

However, Professor Yarrow, chairman of the Regulatory Policy Institute, who has served as a non-executive member of the Gas and Energy Markets Association (Gema), Ofgem's supervisory board, since 2006, said he believed that the recommendations represented “bad policy” that would harm more consumers than they would help.
He asserted that by forcing all energy companies to adopt similar pricing structures, there would be less competition among suppliers and prices would be forced up.
Critics of the policy say that energy companies seeking new customers in regions outside their local area will be unable to offer lower prices, diminishing the incentive for consumers to switch suppliers.
The formal minutes from Gema's meetings show that the dispute between Professor Yarrow and other members of the authority, including Alistair Buchanan, the chief executive of Ofgem, came to a head at a stormy special meeting on March 5 to discuss the controversial pricing arrangements.
At the next meeting, two weeks later, Professor Yarrow did not attend, and at the subsequent meeting, six weeks ago, board members were informed that he had submitted his resignation.
The minutes also reveal that Professor Yarrow had been pressing for the issue to be referred to the Competition Commission for a second opinion.
Ofgem defended the policy changes yesterday but said that it regretted Professor Yarrow's resignation. The group said: “Professor Yarrow was a valued member of Ofgem's authority. His contribution will be missed.”
In comments to Utility Week, the industry journal, Professor Yarrow said that the changes reflected a “deep incoherence/inconsistency” in Ofgem policy with profound implications for the health of the energy market.
He was not alone in his views. Sir John Vickers, the former chairman of the Office of Fair Trading, and Stephen Littlechild, the former electricity regulator, have written to Ofgem to express their concern that the policy will have “harmful anti-competitive” effects.