Ofgem Review
The Ofgem Review Final Report was published on 12 July 2011.
The review proposed to strengthen the current system by bringing greater clarity and coherence to the roles of Government and the regulator. This means:
- Ofgem will continue to regulate independently of Government;
- Government will communicate more clearly the respective roles of Government and Ofgem, including clear strategic goals set out in a new statutory Strategy and Policy Statement;
- Greater transparency and accountability to the public.
The Strategy and Policy Statement will be established under new primary legislation, which will be introduced as soon as Parliamentary time allows.
The Final Report contains Ofgem's response to issues raised by stakeholders during the Review, in particular through the Review's Call for Evidence.
The Ofgem Review: Summary of Conclusions was published on 19 May 2011, providing an early high-level summary of the Review's conclusions.
An Impact Assessment of the Strategy and Policy Statement was undertaken as part of the review. The final Impact Assessment Report was published alongside the Summary of Conclusions.
The Ofgem Review was announced by the Secretary of State on 27 July 2010 and explored whether any changes to the regulatory framework were necessary to enable the Government to achieve its energy and climate change goals. A Call for Evidence was held during the review. To see the Call for Evidence and the Government response, please visit the Ofgem review: a call for evidence page.
The regulator
Ofgem, the independent energy regulator, is responsible for regulation of the energy markets in England, Scotland and Wales.
Gas and electricity companies generally need a licence to operate. Ofgem’s key functions include:
- issuing, modifying, enforcing and revoking licences
- setting price controls in the natural monopoly licensed sectors
- investigating and penalising those in breach of licence conditions
For more information on licence conditions, visit the Ofgem: licensing web pages.
Ofgem was established by the Utilities Act 2000, and operates independently. This ensures energy regulation is free from political interference, and helps avoid uncertainty in the energy markets.
Ofgem’s main objective is to protect energy consumers’ interests wherever appropriate through effective competition or by other means.
As the regulator, Ofgem can be held to account by:
- parliamentary scrutiny
- appeals to the Competition Commission
- judicial review
- regulatory impact assessments
- consumer representation
DECC
DECC sets UK energy policy goals and the framework for achieving them. The Ministry of Justice: The UK Statute Law Database - Electricity Act 1989, the Ministry of Justice: The UK Statute Law Database - Gas Act 1986 and the Ministry of Justice: The UK Statute Law Database - Utilities Act 2000 are the main pieces of current energy legislation.
DECC also has some specific functions in the energy sector, including:
- granting consent for power stations
- defining the extent of the regulated industry by deciding on licence exemptions
- appointing members of the Gas and Electricity Markets Authority (GEMA) – which sets Ofgem’s strategy
- having the power of veto on any proposal by the regulator to modify licences
- DECC also sets wider social and environmental policy relating to energy, and deals with the growing international energy issues – specifically liberalisation of the EU energy market, and imports of oil and gas
- DECC leads on energy policy, although many other Government departments, and the devolved administrations, also have a considerable interest in it. DECC also looks after areas such as energy efficiency and fuel poverty
The Carbon Trust and the Energy Saving Trust are independent, not-for-profit organisations funded by the Government.
Consumer body
The Ministry of Justice: The UK Statute Law Database - Utilities Act 2000 separated the consumer body Energywatch from Ofgem, the energy regulator. Energywatch's sole responsibility is to represent consumers, by resolving complaints, providing information, and putting consumers’ interests forward to the regulator, Government and utility companies. Energywatch has now been absorbed within Consumer Focus.
Licencees
All energy generation, transmission, distribution and supply in the UK is now run by private sector companies, with the exception of British Nuclear Fuels (BNFL). These companies are regulated through licences and codes of practice. Price regulation only exists where there are natural monopolies – for example in ‘pipes and wires’ businesses.
Privatisation of the energy industry has generally resulted in greater investment and reliability, and lower energy costs.
Social and Environmental Guidance to Ofgem
DECC issued new statutory Social and Environmental Guidance to Ofgem on 21 January 2010:
The guidance sets out those areas of social and environmental policy which Ofgem is expected to contribute towards achieving as it undertakes its regulatory functions. The guidance covers areas such as tackling fuel poverty and facilitating the necessary investment in new grid connections to help meet our 2020 targets, as well as other matters.
Sections 3B of the Electricity Act 1989 and 4AB of the Gas Act 1986 provide that the Secretary of State shall give the Gas and Electricity Markets Authority guidance as to the contribution the Authority should make towards the attainment of social and environmental policies. The Authority is required to have regard to the Guidance when discharging its statutory functions, but the guidance is not a means to direct Ofgem.