The energy regulator awarded a contract worth hundreds of thousands of pounds to a consultancy firm to advise on a record price cap hike – despite the company having also been hired by big six suppliers.
The price cap, the maximum amount a utility company can charge a customer per unit of energy calculated by the Office of Gas and Electricity Markets (Ofgem), is increasing by 54 per cent next month – which will send bills soaring, burdening struggling households amid the cost-of-living crisis.
Now The Independent can reveal that Ofgem handed Baringa Partners, a management consultancy firm, a nine-month £420,000 contract “specifically to assist in the determination whether any adjustment is required to the cap as a result of the current energy price hike, and if so, what form/level it should take”.
The award notice, which states the delivery is from 4 November last year until 3 August, explains the “work will feed into a decision at the start of February 2022” – the energy cap rise was announced early last month.
It is just one of a series of payments – including a £1.35m ongoing contract – made by Ofgem to Baringa Partners in recent years, with literature on the company’s website showing it has been involved in work on the price cap since 2019.
But as well as accepting public money to consult for the industry watchdog, the company – which recorded a £88.89m pre-tax profit in its latest accounts – has also frequently been hired by major energy suppliers that Ofgem is in charge of regulating.
They include EDF Energy, E.ON, British Gas, ScottishPower and SSE. Meanwhile, Centrica, EDF Energy and E.ON UK are described as “key clients” on Baringa’s website.
Lord Sikka, a Labour peer and accounting professor, told The Independent: “This does look a conflict of interests – Ofgem should have required some declarations before deciding who to grant the contract to. The awarding of contract to Baringa and its prior links with energy companies should also have formed part of public disclosures by Ofgem.”
He added: “There are also questions about the wisdom of hiring any consultant, especially as price caps may be revised more frequently. The reliance upon consultants means that Ofgem lacks the institutional knowledge. At the end of the contract, the knowledge walked out with Baringa.”
Stephen Thomas, emeritus professor of energy policy at the University of Greenwich, also said Baringa Partners’ relationship with Ofgem and big six energy suppliers represented a potential conflict of interest.
“It’s a problem that they don’t want to talk about,” he said. “The companies will say they’ve got Chinese walls
“It’s the same with all regulated activities – the regulators don’t have much in-house capability and they just use the some pool of consultants as the companies, and the companies have got more money.”
However, Baringa denied a conflict of interest, instead saying it was “just sound business practice”.
The energy price cap, designed to prevent firms from making excessive profits, will increase for approximately 22 million customers from April 1, Ofgem announced on 3 February.
Ofgem calculates it means the average household on default tariffs paying by direct debit will see a £693 increase to £1,971 per year for gas and electricity. There will be an increase of £708 from £1,309 to £2,017 a year for the average prepayment customer. The regulator said the increase is “driven by a record rise in global gas prices over the last six months”.
The price cap sets the top rate suppliers can charge per unit of gas and electricity – rather than a cap on customers’ overall energy bills, which still rise or fall depending on energy consumption.
Chancellor Rishi Sunak has announced a support plan worth £350 – via a £150 council tax rebate and a repayable upfront £200 discount – each for “the vast majority of households” to take the “sting” out of the rise.
Last month, The Independent revealed how Britain’s big six energy firms have banked more than £7bn in operating profit in just five years.
Ofgem separately awarded a £1,354,080 four-month contract to Baringa for work from 24 January to 31 May on “responding” to “the energy market situation”, including “financial resilience and controls”.
A three-and-a-half-month £250,000 contract, from 20 December to 31 March, was awarded by Ofgem to Baringa Partners for “Analytical Support to Deliver Price Cap Update”.
Baringa Partners was awarded another contract by Ofgem worth £307,080 for a “cost deferral mechanism project” from 16 February to 15 June of this year.
Meanwhile, there have been a series of other payments made by Ofgem to Baringa in recent years, spending data published by the regulator shows, including a total of £486,139.50 in “consultancy fees” in January 2019.
Baringa’s website boasts of its work with public bodies, stating: “Over the last two decades Baringa has provided advisory services to regulatory authorities and to government departments, related to Energy and Financial Services policy and delivery challenges.”
The February 2019 post references work with Ofgem on the energy default tariff cap, citing it as an example of “policy to delivery”. It suggests Baringa was involved with the inception of the default tariff cap, which was introduced in January 2019.
Elsewhere, Baringa’s website sheds light on its work with big six suppliers. A profile of one Baringa partner, Andrew Chittenden, says he has “delivered significant projects for a number of our key clients, including Centrica, EDF Energy and E.ON UK, working with these clients to deliver business change underpinned by improved systems, processes and data”.
Another web page post dated November 2019 details that Baringa “supported” EDF in an acquisition of another firm. A November 2018 post describes how Baringa provided “strategic direction and advice” to British Gas, which is owned by Centrica.
A British Gas director is quoted saying that Baringa “has supported us for a number of years with the transformation of our customer operations function”, adding that they would “unreservedly recommend” the firm.
Meanwhile, Baringa has worked with E.ON on its rollout of smart meters. A September 2019 post says: “E.ON’s transformational approach – with Baringa Partners at its side – has propelled them to market leader status in consumer engagement.”
ScottishPower commissioned Baringa to “analyse whether a level playing field exists in the domestic energy retail market”, according to the supplier’s website, producing a report in 2018.
Baringa referenced SSE Renewables, part of SSE, as “our commercial partners” in December last year in a post on its website.
A spokesperson for Ofgem – whose CEO Jonathan Brearley was awarded a total remuneration package of between £305,000 and £310,000 in 2020/21, up from between £255-260,000 the previous financial year – said: “Nobody can influence the level of the price cap – the price cap is calculated using an established methodology that is clearly published on our website.
“Given the unprecedented energy crisis, we needed more resource to undertake work related to this crucial issue. We work strictly within the rules set out clearly by civil service HR and a due diligence and conflict of interest process is tightly followed, making sure we get value for money, impartial and fair service for our customers.”
“A Baringa spokesperson said: “It is a common practice among consulting firms to advise multiple parties in the same sector.
Clients often proactively seek out support from such firms to ensure they have people who bring current, practical experience from all angles of the sector working on their projects.
“And it is therefore equally common practice among consulting firms to adopt a number of safeguards, including separate teams, to ensure client confidentiality and to avoid conflicts of interest.”
Highlighting the company’s more than two decades of experience in the energy sector, the spokesperson said it was “therefore natural that many of the public and private sector organisations operating in this sector come to us for advice”, adding: “We place the utmost priority on working in our clients’ best interests on every project, and on preserving the trust that our clients place in us.”
The spokesperson continued: “We have been completely transparent with Ofgem about the other clients we work with in this space, and vice versa.
“Our project teams are kept separate and our consultants supporting Ofgem operate under robust procedures that keep them independent from our projects with suppliers.
“Ofgem has procured our services through competitive tender in line with civil service guidelines. There is no conflict of interest here; just sound business practice.”
A spokesperson for SSE said: “The SSE Energy Services brand was sold to Ovo in January 2020, SSE plc has no commercial involvement in the domestic retail market.
“Baringa are one of a number of expert third-party consultancy businesses the SSE Group has utilised, from time to time, to support with economic modelling, project appraisal and market analysis of the wholesale power market for our power generation investments, but again this engagement is not focused on the domestic retail market.”
A ScottishPower spokesperson said: “Like many other companies in the sector we use a variety of consultants. We know that they are also working with Ofgem and other energy companies. We are also aware that these consultancies have processes and procedures in place to ensure there is no conflict of interest.”
EDF, Centrica and E.ON did not provide comment.
