Regulator turns spotlight on its own spending plans

19 February 2004
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19 February 2004 | Simon Binns

Energy regulator Ofgem is to get a taste of its own medicine as it revamps its procurement practices and imposes strict price controls on its spending.

Roy Field, director of finance at Ofgem and in charge of procurement, told SM that although a review of how the regulator spends its money was in the early stages, procurement would be under heavy scrutiny.

"It is very early days but this is an area of opportunity for us and I am sure that procurement will form an important part of the review," he said.

"The companies we regulate will always scrutinise our spending so it is time we subjected ourselves to the same scrutiny."

Savings targets will be established after the review is completed. Ofgem was criticised when its annual spending peaked at £62 million in 2000-01.

Its spending was up at that time partly because it had to pay for the merger of the gas and electric regulatory bodies at the end of the 1990s.

Last year, Ofgem's spending fell to just over £38 million and the workforce was trimmed from 339, then the largest staff of any regulator in Europe, to 295.

The review was suggested by Alistair Buchanan, the new chief executive, who believes Ofgem should adopt the same RPI-X formula it imposes on energy companies seeking to hike their rates to clients.

That formula allows energy companies to increase their prices annually but only by, at most, in line with inflation.

At the same time, Ofgem demands that the companies improve their internal operating efficiencies, particularly procurement practices, to save them money, thereby keeping down prices to their clients.

Ian Dobson, chairman of CIPS Energy Committee, said the appointment of Buchanan is a case of a new brush sweeping clean: "The RPI-X formula is one that Ofgem has used on [supplier] Transco and, while it is challenging, it is also relatively fair and attainable."

Dobson added that Ofgem could also save money by cutting down consultancy work carried out on its behalf.

"It has also been criticised for the large and costly reports it produces, which may often go unread," he said.



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