National Grid is to appeal the £41.6 million fine imposed by the energy regulator for restricting competition in the market for domestic gas meters. But while the spat is fast developing into a high stakes stand off between the two parties, it’s unlikely the consumer will benefit in any meaningful way.
Ofgem slammed the energy network provider for “abusing its dominance in the domestic market” by locking five of the big six energy suppliers into lengthy contracts that effectively hampered the roll out of cheaper energy meters to consumers.
“When the metering market was opened to competition, National Grid struck long-term contracts… which included financial penalties that apply if suppliers replaced more than the small number of meters allowed under the contract by National Grid,” says Ofgem chairman Sir John Mogg.
“They have severely restricted the rate at which suppliers can replace even National Grid’s older meters with cheaper or more advanced meters from rival meter operators. By restricting competition, National Grid has deprived gas suppliers and customers of access to lower prices and improved service.” As a result, it imposed a record fine on the energy network provider.
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Storm brewing
But just hours after the regulator released the above statement; National Grid announced it would lodge an appeal against the fine and denied its contracts had infringed on any competition laws. The company also pointed out that it had consulted with Ofgem throughout the development and negotiation of the disputed contracts.
“Despite nearly three years of exhaustive analysis by Ofgem, we believe there is no evidence that National Grid has harmed consumers, competition or gas suppliers, and we are left with no option but to present our case to the Competition Appeal Tribunal.”
The fact it has appealed at all - let alone so soon - is interesting. National Grid is worth some £20 billion, so the fine would hardly make a serious dent in its balance sheet. Even shareholders are unfazed, with share prices largely static over the last few days.
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Ofgem’s meter agenda
As for Ofgem, one possible reason why it has been so uncharacteristically vociferous in its targeting of National Grid is that it was stifling the roll out of smart meters, which allows consumers to better control their energy consumption and helps suppliers reduce costs significantly through remote reading.
More important for government is that they help reduce emissions, and it is something Ofgem badly wants to see rolled out. Last year it raised the ire of consumer groups by opening the door for suppliers to lock customers in to lengthy mobile phone style contracts in the hopes it would “pave the way for suppliers to offer smart meters”.
Suppliers for their part are already apathetic about their roll out. Not only will smart meters help consumers use less energy, but also allow micro-generation households to feed excess power back into the grid, diminishing suppliers’ profits. So if Ofgem perceived National Grid as a further obstacle to their roll out, it would be spurred in to action.
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Public spat to follow
Whatever their respective reasons, the stakes have now been raised significantly. For National Grid, the case has hardly helped its image and by appealing it has ensured its name will remain in the headlines for quite a while longer.
It is also risking a significantly larger fine: According to reports, Ofgem is able to charge up to 10% of a company’s turnover for four years, and the fine currently stands at just 4%. So the amount could more than double should it lose the appeal.
For Ofgem, any loss would represent an embarrassing defeat and would greatly harm consumer confidence in the regulator’s ability to protect them.
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Not important to the consumer
Yet while both parties stand to lose much, the consumer will gain surprisingly little either way. The size of the fine will not benefit the consumer at all, while even if marginally cheaper meter providers are brought into play, it still requires the suppliers to aggressively support their roll out – an unlikely scenario.
Of far more significance to the consumer is Ofgem’s probe into allegations of price fixing in the energy market, launched last week. With consumers struggling to meet sky rocketing energy prices at a time when suppliers are enjoying record levels of profit, Ofgem has come under increasing pressure to investigate whether the market is stacked against the consumer.
As a result, the regulator is taking a “detailed” look at the competitiveness of suppliers’ pricing and their respective market shares, as well as the relationship between retail and wholesale energy prices. Its findings will only be announced in September, but at least we now know the regulator is able to take action against the larger players, as witnessed by the National Grid fine.
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