The chief executive of the energy watchdog could be replaced after a turbulent few years which has caused staff morale to slump and supplier complaints to increase, its incoming chair has said.
MPs on the energy select committee said there were concerns about Ofgem’s future direction and asked Mark McAllister, the government’s pick to chair the regulator, whether he would consider replacing the chief executive, Jonathan Brearley, if he found he was not leading the watchdog in the right way.
McAllister, an energy executive who is expected to take up the role of chair next month, said: “I would if I found that was the case.”
Ofgem has been widely criticised for allowing poorly capitalised new players to enter the market for supplying electricity and gas, resulting in a string of corporate collapses when energy prices soared.
McAllister told the pre-appointment hearing that he planned to challenge Brearley on his dealings with the energy industry, as well as on the regulator’s internal struggles.
“As a chair you have three tools, basically: encouragement, challenge and replacement. In some ways it’s a bit of a failure if you reach that third one,” McAllister said. “As a board we’re there to make the executive as good as it can possible be.”
McAllister is expected to replace Martin Cave as Ofgem’s chair in November after four years heading the Office for Nuclear Regulation, which polices the nuclear industry. Before this, he had a 40-year executive career in the upstream energy industry. The role of chair pays up to £180,000 for about three days work a week.
Only three candidates were interviewed for the role. McAllister said: “I don’t know to what extent people were put off [from] applying because it was Ofgem, and the organisation’s current reputation. The first thing I want to do is get Ofgem’s reputation much higher over the next five years.”
He told MPs he would make sure the watchdog had learned the lessons of the energy crisis, which led to a flurry of criticism against it. Ofgem had shown “naivety” in allowing suppliers that were not financially robust to join the market, which contributed to the collapses during the energy crisis, McAllister said.
The regulator was also heavily criticised for failing to protect consumers as energy bills sky-rocketed in line with record high gas market prices. Fuel poverty campaigners said the energy price cap was not protecting households from unaffordable energy bills.
It also emerged that British Gas, the UK’s biggest energy supplier, had been using debt agents to force-fit prepayment meters in vulnerable people’s homes.
“We need to make sure that Ofgem works very closely in supervising the industry, especially this winter, to make sure the levels of standards are dramatically improved,” McAllister told the committee.
“The other area where I think I can contribute significantly is internally, because the morale at Ofgem is low,” he said. “They’ve had a lot of criticism over the last couple of years.” In addition, an internal transformation project hads “not gone down very well at all”, he added.
Low morale had led to high turnover of staff, which had hampered the organisation’s ability to do its job, McAllister said. This was “like running up a down-escalator in terms of maintaining technical expertise”, he added.
“The problem with Ofgem at the moment is that their turnover is so high that both the corporate memory has been eroded and the technical knowledge gets diluted. I really want to press Jonathan and the team on making sure that we’re working as hard as we can to get the best organisation,” he told MPs.
Ministers set out plans for a boardroom overhaul at the energy regulator this year in order to recruit new directors to fill five of the eight seats on the board, including the role of chair. Officials also hope to find four new non-executives, including replacements for Christine Farnish – who resigned last year in an argument over the Ofgem price cap – and Paul Grout, who left in 2021.
In a statement after the hearing McAllister, said: “I have full confidence in Ofgem’s CEO Jonathan Brearley. I was asked general questions about my powers as chair and provided a general answer about a range of tools at my disposal.”
