Inappropriate Behaviour

WE ALL KNOW what the legislation says the regulator should be doing but, before saying Ofgem is not doing it, we ought to remind ourselves of its principles to avoid being accused of injustice, or worse. (By the way, when I say 'we' I do not mean only me.)
The regulator's duties are a collection of injunctions and permissions of various kinds scattered throughout the legislation. It must, in whichever of these it does, act in accordance with a pyramid of obligation:

• First it must carry out its duties or exercise its powers so as to achieve X.
• Second it must achieve X in a particular way.
• Third in achieving X it must take account of a number of factors.
• Fourth (sort of hanging on the end) it must also pay attention to guidance.

Thus the main focus for the regulator is doing what it has the power or obligation to do so as to achieve X - even if it has to do it in particular ways while taking account of and paying attention to various matters.
X is, put generally, protecting present and future customers by promoting competition. Given that, it's not surprising that the regulator from time to time seems to come up with yet another hare-brained scheme for introducing a brand new area of competition. Or is it?
Actually it is, and this is the nub of many objections to the regulator's activities: it is only meant to protect customers by promoting competitionwhere it is appropriate to do so.
The regulator cannot appeal to the unalloyed good of competition alone and it cannot claim to have discharged its obligations just because it has brought about yet more competition.
This 'appropriateness test' is a kind of sanity check – and it is one the regulator on occasion spectacularly fails–e.g., its abortive attempt to reform the exit capacity arrangements for gas, or its equally abortive attempts to change the transmission losses regime.
There is a new case of failure to pass the appropriateness test: the 'OFTO' regime, which came into operation this summer and which introduces something the regulator inaptly calls 'competition' into offshore transmission.
If we apply it to the timetable for the Pentland Firth we can see exactly how it works.

• Mid-May: Developers bid for Crown Estate leases for offshore sites.
• End September: Lease options signed. Immediately developers pay National Grid for a connection offer.
• End December: Connection offer made. End January: Developers must have reviewed and negotiated with NG and accepted the offer.
• End February: Apply to Ofgem to join the June tender.
• March-April: The developer pays Ofgem to draft its PIM, populates a data room specified by Ofgem, enters into agreements with Ofgem, pays Ofgem £50,000, provides a guarantee to Ofgem, agrees liability to Ofgem for all other Ofgem costs (including for heat and light).
• June Onward: The developer waits twelve months. It then pays Ofgem yet more and deals with a transmission operator chosen by Ofgem – a choice it has had no role in – before it has firm connection details and price.

Ofgem/DECC have lauded this bizarre arrangement as one to “promote innovation and deliver lower costs”. It is remarkably hard to see the basis for the claim.
They also assert that it will deliver offshore transmission “economically and efficiently”. The basis for this is mysterious.
Worse (if anything could be worse) they appear to have overlooked the funding that will enable offshore schemes to be built. They also appear not to have noticed that the regime affects marine as well as wind. The finance market tells us this is a disaster for any developer lacking a substantial balance sheet and particularly affects marine power.
This is a mockery of better regulation and runs counter to the regulator's primary objectives. What should the regulator be doing? Whatever it is, it is definitely not this.


(© Sally Barrett-Williams)