Senior staff at UK regulator Ofgem were forced to reapply for their jobs as part of a disruptive restructuring that consultancy McKinsey was paid £2mn to help design just as the energy crisis struck.
The staff reorganisation resulted in widespread demoralisation and led to several experienced employees leaving, according to several people close to Ofgem.
It came at a time when the body was under severe pressure from the collapse of 29 retail companies as a result of poor capitalisation, inadequate hedging and a rise in wholesale gas prices.
During the energy crisis, Ofgem has sought advice from all of the Big Four consultancies — Deloitte, EY, KPMG and PwC — as well as advisers from PA Consulting, Cambridge Economic Policy Associates, FTI Consulting, Oliver Wyman and Baringa.
Overall, it paid consultants £23.4mn in the year to March, according to its accounts — more than half its non-staff spending. Of this, £14mn was spent in the first quarter, as the energy crisis intensified following Russia’s invasion of Ukraine.
Ofgem’s decision to make some staff reapply for their roles has drawn particular ire from within its own ranks.
“Who would put staff through a major restructuring at the height of an energy crisis?” said one person close to the reorganisation. “It’s mad.”
One staff member took to social media anonymously to complain about the process, saying: “Can’t help but feeling like having to completely reapply for my role, that I have done very well for a number of years should be decided by an interview and not by an online SJT [situational judgment test].”
McKinsey advised on the design of the reorganisation but was not involved in the implementation and played no part in the requirement for some staff to reapply for their jobs, said one person briefed on the consultancy’s work.
It was awarded a contract last year worth £824,000 to advise on an “organisational development transformation” between June 2021 and February 2022, according to a contract notice published online. The consultancy was ultimately paid £1.89mn for its work, according to invoice data reviewed by Tussell, a company that tracks government contracts.
McKinsey was called on to help design Ofgem’s new organisational structure and work with the watchdog’s human resources department to develop a “flexible resourcing model; and develop the required elements of the future career model and performance management”, according to the contract notice.
Ofgem said that “only our senior leaders required an application process as part of the restructure, and this is good, standard practice within the civil service”.
It said it had in the past year “worked with external contractors in order to move to its new, more fit-for-purpose permanent structure. Temporarily contracting external experts has allowed us to add value and skills quickly and for a time-limited period without growing the size of the workforce permanently.”
McKinsey declined to comment.
Liz Truss, the new prime minister, has promised a review of the regulator. The regulator has been heavily criticised by consumer groups, MPs, the National Audit Office and a former board member over its handling of the energy crisis.
Christine Farnish, a non-executive director at Ofgem, resigned in August because the “regulator didn’t get the balance right and gave too much benefit to companies at the expense of consumers”.
Citizens Advice, the consumer lobby group, has accused Ofgem of allowing unfit and unsustainable energy companies to trade with little penalty. The cost of transferring failed companies’ customers to new suppliers is being paid for by all consumers. Households have had about £94 a year added to their bills so far to cover the costs, but that figure is expected to rise sharply next year.
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