Office of Gas and Electricity Markets

Last updated

Office of Gas and Electricity Markets
Welsh: Swyddfa’r Marchnadoedd Nwy a Thrydan
Ofgem.png
Non-ministerial government department overview
Formed1 November 2000
Preceding agencies
  • Office of Electricity Regulation
  • Office of Gas Supply
Jurisdiction United Kingdom
Headquarters10 South Colonnade, Canary Wharf, London, E14
Employees761
Annual budgetFor 2015–2016 Parliament approved through the Main Estimate: a gross resource budget of £89.500 million [1] £50.6 million (2009–2010) [2]
Minister responsible
Non-ministerial government department executive
  • Jonathan Brearley, Chief Executive
Website www.ofgem.gov.uk

The Office of Gas and Electricity Markets (Ofgem), supporting the Gas and Electricity Markets Authority (GEMA), is the government regulator for the electricity and downstream natural gas markets in Great Britain. It was formed by the merger of the Office of Electricity Regulation (OFFER) and Office of Gas Supply (Ofgas).

Contents

Powers and duties

The authority's powers and duties are largely provided for in statute (such as the Gas Act 1986, the Electricity Act 1989, the Utilities Act 2000, the Competition Act 1998, the Enterprise Act 2002 and the Energy Act 2004, [3] the Energy Act 2008 [4] and the Energy Act 2010 [5] ) as well as arising from directly effective European Union legislation. Duties and functions concerning gas are set out in the Gas Act and those relating to electricity are set out in the Electricity Act.

Its primary duty is to protect the interests of consumers, where possible by promoting competition. [6]

The Authority‘s main objective is to protect existing and future consumers' interests in relation to gas conveyed through pipes and electricity conveyed by distribution or transmission systems. Consumers' interests are their interests taken as a whole, including their interests in the reduction of greenhouse gases and in the security of the supply of gas and electricity to them. [7] Since 2010 the Authority has imposed nearly £100 million in fines and redress levies against energy suppliers, including a £12 million redress levy on E.ON in May 2014, [8] and a £1 million redress levy on British Gas in July 2014. [9]

Structure

The Gas and Electricity Markets Authority is governed by the Chairman Martin Cave, executive members as well as non-executive members. [10]

Jonathan Brearley was appointed Chief Executive of Ofgem from February 2020. [11]

Development of competition in the UK market

Background: Ofgas and OFFER

The liberalisation and privatisation of the energy markets in the United Kingdom began with the Margaret Thatcher Government in the 1980s (often called the Thatcher-Lawson agenda, due to the key role of Nigel Lawson in the Thatcher government cabinet). Aspects of the Ofgem model have been adopted by EU legislation. [12]

The privatisation of the gas and electricity supply industries was enacted by Gas Act 1986 and the Electricity Act 1989. Section 1 of the respective Acts created the roles of Director General of Gas Supply [13] and the Office of Gas Supply (Ofgas), and the Director General of Electricity Supply [14] and the Office of Electricity Regulation (OFFER). These were economic regulators independent of government, but accountable to Parliament. This arrangement separated their regulatory decisions from political control and which aimed to provide greater long term regulatory certainty and to encourage market entry and investment. The duties of the regulators were prescribed in Section 4 of Gas Act 1986 [13] and Section 3 of the Electricity Act 1989. [14]

Starting in the 1990s, the supply of electricity and gas to end consumers in the UK has been unbundled from the rest of the industry. At the time of privatisation, British Gas and one regional public electricity supplier (PES) held a monopoly on supplying all domestic gas and electricity consumers respectively in Great Britain. Between 1996 and 1999, domestic energy consumers were gradually able to choose their supplier, and finally in May 1998, the domestic gas market was fully opened to competition, closely followed by the domestic electricity market in May 1999. [15]

Role of Ofgem

Before there was competition on domestic markets, the regulators set price controls fixing maximum price that the monopoly suppliers could charge domestic customers. These price controls remained in place when markets started to get liberalised, and were then gradually removed between 2000 and 2002. Ofgem’s decision to remove price controls was based on the assessment that competition was developing well at that time and that the Competition Act 1998, being effective since March 2000, would deter companies from the abuse of market power, and provide Ofgem with sufficient power to tackle any abuse. Moreover, consumer surveys showed good awareness of the ability to switch, high and rising switching rates away from the former monopoly supplies, and substantial and continuing falls in their market shares. [16]

In 2000, the Social Action Strategy review group was established and the Competition Act came into force. In 2003 the Wholesale Gas Probe was published. Two years after the removal of the last price controls, in April 2004, Ofgem published a major review of the state of competition in the domestic energy supply markets, concluding that supply competition had delivered substantial benefits for all consumers and that the markets were competitive, though not yet mature. In 2005 there was the EU Energy Sector Enquiry, as well as the Supply Licence Review. The Energy Supply Ombudsman was then established in 2006 and in 2008 the Energy Supply Probe was published. [17]

Against the background of unprecedented increases in world fuel prices leading to record increases in wholesale and retail gas and electricity prices so that a typical household's energy bills more than doubled since early 2004 Ofgem undertook the Energy Supply Probe. The numbers of consumers in debt to their energy suppliers, average debt levels and disconnection rates were all rising. These energy price rises came at a time when household budgets were under pressure from the rising cost of food, petrol, mortgages and other essentials. Vulnerable consumers and those in fuel poverty were particularly affected. The Energy Supply Probe published the findings on the operation of the UK retail energy markets and set out a package of measures to tackle the issues raised. [18]

CMA investigation

In June 2014 Ofgem announced a Competition and Markets Authority (CMA) investigation into the trading practices and competitiveness of the country's major energy companies: Centrica, SSE plc, RWE npower, E.ON, Scottish Power and EDF Energy. The investigation, which took two years, followed a referral by Ofgem to the competition regulator. "There is near-unanimous support for a referral and the CMA investigation offers an important opportunity to clear the air. This will help rebuild consumer trust and confidence in the energy market as well as provide the certainty investors have called for," Ofgem CEO Dermot Nolan in announcing the investigation. [19] In August 2016 Ofgem said that it would implement the CMA's recommendation that suppliers should be required to provide the details of customers who have been on expensive tariffs for three years or more to rival suppliers. Ofgem also said that it would impose an interim price cap on customers using pre-payment meters. [20]

Energy price caps

In October 2017, Prime Minister Theresa May announced her intention to introduce a cap on standard variable tariffs for energy customers, to be designed and implemented by Ofgem. [21]

The Domestic Gas and Electricity (Tariff Cap) Act 2018 received Royal Assent on 19 July 2018. [22] It stipulated that the price cap would be in place from the end of 2018 until 2020, when Ofgem would recommend whether the cap should remain on an annual basis up to 2023. Ofgem would also review the level of the cap at least every 6 months while it is in place. [22]

Ofgem refers to this as the "default tariff" price cap, to distinguish it from the "prepayment" price cap, its other energy price cap. [23]

Allegations of abuse of power relating to whistleblowers

In September 2018, the Guardian published a report claiming that two Ofgem experts had been independently threatened with criminal sanctions if they publicly revealed information. Ofgem allegedly invoked section 105 of the Utilities Act 2000, designed to protect national security, relating to concerns about energy meters and renewable heat incentive projects. [24]

Alternative Dispute Resolution (ADR)

Under the Alternative Dispute Resolution for Consumer Disputes Regulations 2015, if an energy company fails to resolve a complaint through their own customer service efforts they will be required to advise the consumer of an approved ADR body.

Ofgem is the Competent Authority responsible for approving ADR entities in the energy sector.  Ofgem has only ever approved one ADR entity; Ombudsman Services. [25]

Key people

Directors General of Ofgas

Director General of OFFER

Chair and Chief Executive of Ofgem

Chair of Ofgem

Chief Executive Officer of Ofgem

See also

Related Research Articles

Scottish Power British energy company

Scottish Power is a vertically integrated energy company based in Glasgow, Scotland. It is a subsidiary of Spanish utility firm Iberdrola.

The Renewables Obligation (RO) is designed to encourage generation of electricity from eligible renewable sources in the United Kingdom. It was introduced in England and Wales and in a different form in Scotland in April 2002 and in Northern Ireland in April 2005, replacing the Non-Fossil Fuel Obligation which operated from 1990.

Centrica plc is a British multinational energy and services company with its headquarters in Windsor, Berkshire. Its principal activity is the supply of electricity and gas to consumers in the United Kingdom and Ireland. It also provides energy solutions and trading to businesses worldwide.

Good Energy

Good Energy Group PLC is a British energy company based in Chippenham, Wiltshire that generates and purchases renewable electricity, and supplies green electricity and gas to homes and businesses throughout the UK. Its CEO is Juliet Davenport. Good Energy was founded to help homes and businesses be part of a sustainable solution to climate change.

Energy policy of the United Kingdom Overview of the energy policy of the United Kingdom

The current energy policy of the United Kingdom is the responsibility of the Department for Business, Energy and Industrial Strategy (BEIS), after the Department of Energy and Climate Change was merged with the Department for Business, Innovation and Skills in 2016. Energy markets are also regulated by the Office of Gas and Electricity Markets (Ofgem).

Npower (United Kingdom) UK-based electricity generator and supplier of gas and electricity

Npower Limited is a British electricity generator and supplier of gas and electricity to homes and businesses. It is a subsidiary of E.ON UK after being acquired in January 2019. It was formerly known as Innogy plc. As Innogy plc it was listed on the London Stock Exchange and was a constituent of the FTSE 100 Index.

Green electricity in the United Kingdom

Green electricity in the United Kingdom. There are a number of suppliers offering green electricity in the United Kingdom. In theory these types of tariffs help to lower carbon dioxide emissions by increasing consumer demand for green electricity and encouraging more renewable energy plant to be built. Since Ofgem's 2014 regulations there are now set criteria defining what can be classified as a green source product. As well as holding sufficient guarantee of origin certificates to cover the electricity sold to consumers, suppliers are also required to show additionality by contributing to wider environmental and low carbon funds.

OVO Energy Energy supply company based in Bristol, United Kingdom

OVO Energy is an energy supply company based in Bristol, England. It was founded by Stephen Fitzpatrick and began trading energy in September 2009, buying and selling electricity and gas to supply domestic properties throughout the UK. By June 2017 OVO had 680,000 customers, an increase of 10,000 over the previous year, representing a 2.5% domestic market share. In November 2018, OVO Energy acquired one of its largest competitors, Spark Energy. Although at first one of over 15 smaller energy companies competing with the Big Six which dominated the market, in January 2020 OVO completed the acquisition of the retail arm of SSE, becoming itself one of the Big Six and the country's third-largest domestic energy supply company.

Green Energy (UK) plc

Green Energy (UK) plc, also known as Green Energy UK, is an independent sustainable energy company which sells 100% Ofgem-certified green and renewable electricity and gas, to homes, businesses and organisations in England, Wales and Scotland. Green Energy UK is the only energy supplier in the UK to offer 100% green gas. Based in Ware, Hertfordshire, Green Energy UK was founded in 2001 by chief executive officer Douglas Stewart.

Electricity Act 1989 United Kingdom legislation

The Electricity Act 1989 provided for the privatisation of the electricity supply industry in Great Britain, by replacing the Central Electricity Generating Board in England and Wales and by restructuring the South of Scotland Electricity Board and the North of Scotland Hydro-Electric Board. The Act also established a licensing regime and a regulator for the industry called the Office of Electricity Regulation (OFFER), which has since become the Office of Gas and Electricity Markets (OFGEM).

The Big Six were the United Kingdom's largest retail suppliers of gas and electricity. In 2019, the Big Six companies were British Gas, EDF Energy, E.ON UK, Npower, Scottish Power, and SSE.

Gas Act 1986 United Kingdom legislation

The Gas Act created the framework for privatization of the gas supply industry in Great Britain. This legislation would be replacing the British Gas Corporation with British Gas plc. The Act also established a licensing regime, a Gas Consumers’ Council, and a regulator for the industry called the Office of Gas Supply (OFGAS).

Solarplicity Energy supply company in the United Kingdom

Solarplicity Energy Limited was a renewable energy company based in Hertfordshire, England. In August 2019 the company became the 13th energy supplier to collapse since 2018, affecting around 7,500 domestic and 500 business customers.

Collective Switching is where customers negotiate a group deal with a utility service such as gas or electricity. This is popular in the United Kingdom, Australia, the Netherlands, and Ireland. In the UK, collective switching has always been managed by a third party which gathers the consumers together into a grouping via a registration or membership model and then takes their collective demand to the supply base and obtains from a supplier preferential or bespoke rates for that group of consumers.

Extra Energy Supply Ltd was an independent retail energy supplier based in Birmingham, England. It supplied gas and electricity to domestic and small business customers. Extra Energy is part of Extra Holding, which operates in industries including telecoms, travel, insurance and energy.

Robin Hood Energy

Robin Hood Energy was a not-for-profit energy company launched in September 2015 by Nottingham City Council as a competitor to the "big six" energy suppliers in the United Kingdom. The company supplied gas and electricity nationally to homes and businesses until September 2020, when its customer accounts were sold to Centrica, the parent company of British Gas.

The Commission for Regulation of Utilities (CRU), formerly known as the Commission for Energy Regulation, is the Republic of Ireland's energy and water economic utility regulator.

Bulb Energy British energy supply company

Bulb Energy Ltd., trading as Bulb, is a privately financed energy supply company operating in the United Kingdom, Texas, Spain, and France. Bulb is based in London. Bulb began trading in August 2015, buying and selling electricity and gas to supply domestic properties. It is one of over 70 smaller energy companies competing with the "Big Six energy suppliers" which dominate the UK market. Bulb competes on price, offering a single variable tariff. It supplies 100% renewable electricity and 100% carbon neutral gas. Attracting venture capital, Bulb runs at a financial loss while achieving rapid growth in customers.

Octopus Energy is a UK-based retail electricity and gas supplier specialising in sustainable energy. It was established in 2015 as a subsidiary of Octopus Group, a British asset management company. As of February 2021 the company had over 2 million domestic and business customers, as well as providing software services to other energy suppliers. Octopus Energy has operations in the UK, Germany, and the USA.

Utilita Energy is an electricity and gas supplier operating in the United Kingdom. Utilita began trading in 2003 – specialising in Smart Pay As You Go Energy. It is one of the UK's largest energy suppliers by market share.

References

  1. Ofgem Annual Report 2015–2016 (PDF), Office of Gas and Electricity Markets, 15 June 2016, retrieved 15 December 2016
  2. Ofgem Annual Report 2009-2010 (PDF), Office of Gas and Electricity Markets, 15 July 2010, retrieved 18 December 2010
  3. "The UK Statute Law Database: The Energy Act 2004". Statutelaw.gov.uk. Retrieved 13 January 2013.
  4. "The UK Statute Law Database: The Energy Act 2008". Statutelaw.gov.uk. 27 May 2011. Retrieved 13 January 2013.
  5. "The UK Statute Law Database: The Energy Act 2010". Statutelaw.gov.uk. Retrieved 13 January 2013.
  6. "The role of energywatch and Ofgem" (PDF). p. 2. Archived from the original (PDF) on 8 September 2008. Retrieved 13 January 2013.
  7. "Ofgem Electricity and Gas Supply Market Report September 2010" (PDF). pp. 19–21. Retrieved 13 January 2013.
  8. "E.On to reimburse 12mn pounds to customers for mis-selling power". The UK News. Archived from the original on 18 May 2014. Retrieved 17 May 2014.
  9. "BG pays compensation for mis-sold contracts". Britain News.Net. Archived from the original on 14 July 2014. Retrieved 5 July 2014.
  10. 1 2 "Gas and Electricity Markets Authority" (webpage). Retrieved 13 January 2013.
  11. 1 2 "Ofgem appoints Jonathan Brearley as chief executive". Ofgem. 2 October 2019. Retrieved 3 April 2020.
  12. "Energy: What do we want to achieve? - European Commission". Ec.europa.eu. Retrieved 13 January 2013.
  13. 1 2 "Gas Act 1986". legislation.gov.uk. Retrieved 3 April 2020.
  14. 1 2 "Electricity Act 1989". legislation.gov.uk. Retrieved 3 April 2020.
  15. "Energy Supply Probe - Initial Findings Report" (PDF). pp. 18–20. Retrieved 13 January 2013.
  16. "Energy Supply Probe - Initial Findings Report" (PDF). p. 20. Retrieved 13 January 2013.
  17. "Energy Supply Probe - Initial Findings Report" (PDF). pp. 20–21. Retrieved 13 January 2013.
  18. "Energy Supply Probe — Initial Findings Report" (PDF). pp. 22–27. Retrieved 13 January 2013.
  19. "UK market regulator to probe power utilities' operations". The UK News. Retrieved 27 June 2014.
  20. Mehreen Khan (3 August 2016). "Ofgem approves plans to reduce energy bills". Financial Times. Retrieved 3 August 2016.
  21. Milligan, Brian (4 October 2017). "Theresa May revives plan to cap energy prices". BBC News. Retrieved 21 October 2020.
  22. 1 2 "Victory for consumers as cap on energy tariffs to become law" (Press release). Gov.uk. 19 July 2018. Retrieved 21 October 2020.
  23. "About energy price caps" . Retrieved 21 October 2020.
  24. Nick Hopkins (17 September 2018). "Ofgem exploited national security law to silence us, whistleblowers claim". Guardian newspapers. Retrieved 17 September 2018.
  25. ADR information, Adr (September 2015). "Ofgem website". Ofgem.
  26. "UK: Regulating the regulators". Management Today. 1 June 1993. Retrieved 3 April 2020.
  27. The Times, 25 September 1993, p.21
  28. Young, A. (13 March 2001). The Politics of Regulation. Google Books. ISBN   9780333978122 . Retrieved 3 April 2020.
  29. Buckley, Christine (30 December 1998). "Outgoing regulator attacks power plant ban". The Times.
  30. "Former EC leader to head Ofgem". Wales online. 13 May 2003. Retrieved 3 April 2020.
  31. "David Gray, Ofgem chairman, to retire in September". www.ofgem.gov.uk. 14 December 2020. Retrieved 27 November 2020.
  32. "Government selects Martin Cave as preferred candidate to be next Ofgem chairman". Ofgem. 25 June 2018. Retrieved 3 April 2018.
  33. "Andrew Wright appointed Interim CEO of Ofgem". Ofgem. 9 May 2013. Retrieved 3 April 2013.