Office of Gas and Electricity Markets

Last updated

Office of Gas and Electricity Markets
Welsh: Swyddfa’r Marchnadoedd Nwy a Thrydan
Ofgem logo.svg
Non-ministerial government department overview
Formed1 November 2000;23 years ago (2000-11-01)
Preceding agencies
  • Office of Electricity Regulation
  • Office of Gas Supply
Jurisdiction Great Britain
Headquarters10 South Colonnade, Canary Wharf, London, E14
Employees1,187
Annual budgetFor 2015–2016 Parliament approved through the Main Estimate a gross resource budget of £89.5 million [1]
Minister responsible
Non-ministerial government department executive
Website ofgem.gov.uk OOjs UI icon edit-ltr-progressive.svg

The Office of Gas and Electricity Markets (Ofgem), supporting the Gas and Electricity Markets Authority (GEMA, the Ofgem Board [2] ), is the government regulator for the electricity and downstream natural gas markets in Great Britain. [3] 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, [4] the Energy Act 2008 [5] and the Energy Act 2010 [6] ) 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. [7]

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. [8] 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, [9] and a £1 million redress levy on British Gas in July 2014. [10]

Structure

The Gas and Electricity Markets Authority is governed by the Chairman Martin Cave, executive members as well as non-executive members. [11]

Jonathan Brearley was appointed Chief Executive of Ofgem from February 2020. [12]

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 UK's model have been adopted by EU legislation. [13]

The privatisation of the gas and electricity supply industries was enacted by the Gas Act 1986 and the Electricity Act 1989. Section 1 of the respective Acts created the roles of Director General of Gas Supply [14] and the Office of Gas Supply (Ofgas), and the Director General of Electricity Supply [15] 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 in order 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 the Gas Act 1986 [14] and Section 3 of the Electricity Act 1989. [15]

Starting in the 1990s, the supply of electricity and gas to retail consumers in the UK has been unbundled from the rest of the industry. At the time of privatisation, British Gas and the regional public electricity suppliers held a monopoly on supplying all domestic gas and electricity consumers respectively. In 1997, British Gas was split (demerged) into Centrica and BG plc, in order to separate gas supply from its production and distribution. [16] Between 1996 and 1999, domestic energy consumers were gradually able to choose their supplier. Finally, in May 1998 the domestic gas market was fully opened to competition, followed by the domestic electricity market in May 1999. [17]

Role of Ofgem

Before there was competition in domestic markets, the regulators set price controls which fixed the maximum price that the monopoly suppliers could charge domestic customers. These controls remained in place when markets started to be liberalised, and were removed in stages between 2000 and 2002. Ofgem's decision to remove price controls was based on their 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 suppliers, and substantial and continuing falls in their market shares. [18]

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. Between 2005 and 2007, Ofgem carried out a Supply Licence Review, resulting in simplification of supply licences, with the aim of reducing barriers to entry to the supply market, and enabling innovation. In 2006, Ofgem required the industry to set up and fund the Energy Supply Ombudsman in response to concerns over the handling of customer complaints. [19]

Ofgem's Energy Supply Probe, published in 2008 after increases in world fuel prices led to the doubling of the energy bill for a typical household, found that the market was still dominated by the "Big Six" suppliers: more than 70% of customers were still with their former monopoly suppliers, and new entrants had captured less than 0.3% of the market. Ofgem implemented a number of measures which improved the information provided to customers and made it easier for them to switch suppliers. The Big Six were obliged to separate their accounting for the supply and generation businesses, and Ofgem noted concerns over market abuses and unfair pricing. [20]

CMA investigation, 2014–2016

In June 2014 Ofgem announced a Competition and Markets Authority (CMA) investigation into the trading practices and competitiveness of the country's "Big Six" 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. [21] 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. [22]

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. [23] The Domestic Gas and Electricity (Tariff Cap) Act 2018 (c. 21) received royal assent on 19 July 2018. [24] 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 six months; [24] from October 2022 reviews were to be conducted every three months, to reflect volatility in wholesale prices. [25]

Ofgem refers to this mechanism as the "default tariff" price cap, to distinguish it from the "prepayment" price cap, its other energy price cap. [26]

Collapses of retail suppliers, 2021–2022

Between July 2021 and May 2022, 29 retail suppliers of gas and electricity collapsed, largely due to unprecedented increases in wholesale gas prices. [27] Ofgem arranged for their customers to be transferred to other companies but this was not possible for the 1.7 million customers of the largest company to enter administration, Bulb Energy, which instead entered a special administration regime underwritten by the UK government. [28]

A July 2022 report "Energy pricing and the future of the energy market" by Parliament's Business, Energy and Industrial Strategy Committee found that Ofgem had been incompetent in its supervision of the finances of supplier companies, and that the government overlooked this lack of supervision because it prioritised competition over market regulation. [27] [29] In response, Ofgem accepted that its previous financial resilience regime was not sufficiently robust, and had contributed to some of the supplier failures since August 2021. [30]

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 smart meters and Renewable Heat Incentive projects. [31]

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. [32]

Energy Industry Voluntary Redress Scheme

Ofgem launched an Energy Industry Voluntary Redress Scheme in 2018 to redistribute money paid by energy companies who have breached their operating licence conditions. Recipients of the fund include vulnerable energy consumers and developers of energy products and services that reduce the environmental impact. The scheme is managed by the Energy Saving Trust. [33] [34] [35]

Notable payments into the scheme include: £12.5m from PayPoint for breaking the 1998 Competition Act; [36] £8.9 from OVO Energy for overcharging customers; [37] £4.5m from Hornsea Wind Farm, £4.5m from Npower and £1.5 from UK Power Networks for failing to remain connected after a lightning strike causing a widespread blackout on 9 August 2019; [38] £2.8m from OVO Energy, £2m from Scottish Power, £1.3m from British Gas, £1.2m from Shell Energy, £1m from SSE plc and amounts from £7k to £713k from 13 other energy suppliers for overcharging between 2013 and 2020; [39] £1.5m from Utility Warehouse for treating customers unfairly and increasing their financial distress; [40] and £1m from SSE plc for sending inaccurate customer statements. [41]

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

<span class="mw-page-title-main">ScottishPower</span> Scottish energy company

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

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

Price-cap regulation is a form of incentive regulation capping the prices that firms in a natural monopoly position may charge their customers. Designed in the 1980s by UK Treasury economist Stephen Littlechild, it has been applied to all privatised British network utilities. It is contrasted with both rate-of-return regulation, with utilities being permitted a set rate of return on capital, and with revenue-cap regulation, with total revenue being the regulated variable.

<span class="mw-page-title-main">Good Energy</span>

Good Energy Group PLC is a British energy company based in Chippenham, Wiltshire that provides services in the electrification of transport and decentralised renewable energy generation such as domestic solar panels. The company is also an energy retailer, and built a portfolio of wind and solar generation which was sold in 2022. Founded by Juliet Davenport, its CEO is Nigel Pocklington.

<span class="mw-page-title-main">Energy policy of the United Kingdom</span> United Kingdom legislation

The energy policy of the United Kingdom refers to the United Kingdom's efforts towards reducing energy intensity, reducing energy poverty, and maintaining energy supply reliability. The United Kingdom has had success in this, though energy intensity remains high. There is an ambitious goal to reduce carbon dioxide emissions in future years, but it is unclear whether the programmes in place are sufficient to achieve this objective. Regarding energy self-sufficiency, UK policy does not address this issue, other than to concede historic energy security is currently ceasing to exist.

Southern Electric plc was a public limited energy company in the United Kingdom between 1990 and 1998, when it merged with Scottish Hydro-Electric plc to form Scottish and Southern Energy plc. The company had its origins in the southern England region of the British nationalised electricity industry. Created in 1948 as the Southern Electricity Board, in 1990 it was privatised by being floated on the London Stock Exchange.

<span class="mw-page-title-main">Npower (United Kingdom)</span> UK-based supplier of gas and electricity

Npower Limited was a British supplier of gas and electricity to businesses. It has been a subsidiary of E.ON UK since January 2019. The company was formerly known as Innogy plc and was listed on the London Stock Exchange and was a constituent of the FTSE 100 Index.

<span class="mw-page-title-main">British Gas</span> Energy and home services provider in the United Kingdom

British Gas is an energy and home services provider in the United Kingdom. It is the trading name of British Gas Services Limited and British Gas New Heating Limited, both subsidiaries of Centrica. Serving around ten million homes in the United Kingdom, British Gas was the largest energy supplier in the country until 2024 when it was overtaken by Octopus Energy. It remains the largest gas supplier. It is considered one of the Big Six dominating the gas and electricity market in the United Kingdom.

Energy Saving Trust is a British organization devoted to promoting energy efficiency, energy conservation, and the sustainable use of energy, thereby reducing carbon dioxide emissions and helping to prevent man-made climate change. It was founded in the United Kingdom as a government-sponsored initiative in 1992, following the global Earth Summit.

<span class="mw-page-title-main">Green electricity in the United Kingdom</span>

The availability and uptake of green electricity in the United Kingdom has increased in the 21st century. 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.

In the United Kingdom, an electricity supplier is a retailer of electricity. For each supply point the supplier has to pay the various costs of transmission, distribution, meter operation, data collection, tax etc. The supplier then adds in energy costs and the supplier's own charge. Regulation of the charging of customers is covered by the industry regulator Ofgem.

The New National Consumer Council, operating as Consumer Futures, was a non-departmental public body and statutory consumer organisation in England, Wales, Scotland, and, for postal services, Northern Ireland. It was established by the Consumers, Estate Agents and Redress Act 2007, and began operations in 2008 by the merging of Postwatch, Energywatch and the Welsh, Scottish and National Consumer Councils under the Consumer Focus brand.

OVO Energy Energy supply company based in Bristol, United Kingdom

OVO Energy is a major energy supplier based in Bristol, England.

<span class="mw-page-title-main">100Green</span> British sustainable energy company

100Green, operating as Green Energy (UK) Ltd, is a British independent-energy company based in Ware, Hertfordshire. It was established in 2001 by CEO Douglas Stewart. The company provides Ofgem-certified renewable electricity and green gas to domestic and business customers throughout Great Britain. It is currently the only energy supplier in the UK to offer 100% green gas.

The Big Six were the United Kingdom's largest retail suppliers of gas and electricity, who dominated the market following liberalisation in the late 1990s. By 2002, six companies – British Gas, EDF Energy, E.ON, RWE npower, Scottish Power and SSE – had emerged from the 15 former incumbent monopoly suppliers.

<span class="mw-page-title-main">Gas Act 1986</span> United Kingdom legislation

The Gas Act 1986 created the framework for privatisation 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).

<span class="mw-page-title-main">Solarplicity</span> 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.

<span class="mw-page-title-main">Bulb Energy</span> British energy supply company

Bulb Energy Ltd., trading as Bulb, was an energy supply company in the United Kingdom acquired by Octopus Energy in 2022. Founded in 2013, the company attracted venture capital from DST Global and Magnetar Capital and ran at a financial loss while achieving rapid growth in customers. Bulb claimed to provide electricity and gas from renewable or off-set sources. As of November 2021, it had a share of approximately 5-6% of the UK energy market and was considered the seventh largest in the country.

Utilita Energy is an electricity and gas supplier operating in the United Kingdom. Utilita began trading in 2003, specialising in pay-as-you-go metering.

References

  1. ↑ Ofgem Annual Report 2015–2016 (PDF), Office of Gas and Electricity Markets, 15 June 2016, retrieved 15 December 2016
  2. ↑ "Gas and Electricity Markets Authority" (webpage). Retrieved 29 March 2024.
  3. ↑ "Our role and responsibilities". Ofgem. Retrieved 31 March 2022.
  4. ↑ "The UK Statute Law Database: The Energy Act 2004". Statutelaw.gov.uk. Retrieved 13 January 2013.
  5. ↑ "The UK Statute Law Database: The Energy Act 2008". Statutelaw.gov.uk. 27 May 2011. Retrieved 13 January 2013.
  6. ↑ "The UK Statute Law Database: The Energy Act 2010". Statutelaw.gov.uk. Retrieved 13 January 2013.
  7. ↑ "The role of energywatch and Ofgem" (PDF). p. 2. Archived from the original (PDF) on 8 September 2008. Retrieved 13 January 2013.
  8. ↑ "Ofgem Electricity and Gas Supply Market Report September 2010" (PDF). pp. 19–21. Retrieved 13 January 2013.
  9. ↑ "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.
  10. ↑ "BG pays compensation for mis-sold contracts". Britain News.Net. Archived from the original on 14 July 2014. Retrieved 5 July 2014.
  11. 1 2 "Gas and Electricity Markets Authority" (webpage). Retrieved 13 January 2013.
  12. 1 2 "Ofgem appoints Jonathan Brearley as chief executive". Ofgem. 2 October 2019. Retrieved 3 April 2020.
  13. ↑ "Single market for gas & electricity". European Commission. Archived from the original on 24 March 2013 – via Internet Archive.
  14. 1 2 "Gas Act 1986". legislation.gov.uk. Retrieved 3 April 2020.
  15. 1 2 "Electricity Act 1989". legislation.gov.uk. Retrieved 3 April 2020.
  16. ↑ "Green light for split British Gas divides with aim of conquering market". HeraldScotland. 13 February 1997. Retrieved 1 November 2021.
  17. ↑ "Energy Supply Probe – Initial Findings Report" (PDF). Ofgem. 6 October 2008. pp. 18–20. Retrieved 13 January 2013.
  18. ↑ "Energy Supply Probe – Initial Findings Report" (PDF). p. 20. Retrieved 13 January 2013.
  19. ↑ "Energy Supply Probe – Initial Findings Report" (PDF). pp. 20–21. Retrieved 13 January 2013.
  20. ↑ "Energy Supply Probe — Initial Findings Report" (PDF). pp. 22–27. Retrieved 13 January 2013.
  21. ↑ "UK market regulator to probe power utilities' operations". The UK News. Retrieved 27 June 2014.
  22. ↑ Mehreen Khan (3 August 2016). "Ofgem approves plans to reduce energy bills". Financial Times. Retrieved 3 August 2016.
  23. ↑ Milligan, Brian (4 October 2017). "Theresa May revives plan to cap energy prices". BBC News. Retrieved 21 October 2020.
  24. 1 2 "Victory for consumers as cap on energy tariffs to become law" (Press release). Gov.uk. 19 July 2018. Retrieved 21 October 2020.
  25. ↑ Jolly, Jasper (4 August 2022). "Ofgem confirms energy price cap to be updated every three months". the Guardian. Retrieved 10 August 2022.
  26. ↑ "About energy price caps" . Retrieved 21 October 2020.
  27. 1 2 "Energy pricing and the future of the energy market – Report Summary". UK Parliament. 26 July 2022. Retrieved 10 August 2022.
  28. ↑ "Energy firm Bulb set to go into administration". BBC News. 22 November 2021. Retrieved 10 August 2022.
  29. ↑ "Cost-of-living payments branded insufficient as energy bills soar". BBC News. 26 July 2022. Retrieved 10 August 2022.
  30. ↑ "Ofgem statement on the Business, Energy and Industrial Strategy Committee's report on energy pricing and the future of the energy market". Ofgem. 26 July 2022. Retrieved 10 August 2022.
  31. ↑ Nick Hopkins (17 September 2018). "Ofgem exploited national security law to silence us, whistleblowers claim". Guardian newspapers. Retrieved 17 September 2018.
  32. ↑ ADR information, Adr (September 2015). "Ofgem website". Ofgem.
  33. ↑ Scottish Housing News (28 July 2020). "Over £2.9m in Ofgem energy redress funding awarded to UK charities". Dundee Press Agency Ltd.
  34. ↑ Shrestha, Priyanka (18 June 2021). "Ofgem's Voluntary Redress Scheme to be extended to community energy groups". Energy Live News. Energy Live News Ltd.
  35. ↑ "About us". Energy Redress scheme. Energy Saving Trust. 2018.
  36. ↑ "PayPoint donates £12.5m to Ofgem's voluntary redress fund following competition investigation". Credit Connect. 23 November 2021.
  37. ↑ "Ovo Energy fined £8.9m for overcharging customers". Sky News. 29 January 2020.
  38. ↑ Saurugg, Herbert (16 August 2019). "Major disturbance in UK grid on 9 August 2019". Herbert Saurugg, Blackout- und Krisenvorsorgeexperte.
  39. ↑ Williams, Martin (2 March 2021). "'Regret': Scots energy firms ordered to pay millions in compensation for overcharging". The Herald. HeraldScotland.
  40. ↑ Earl, Nicholas (10 November 2021). "Utility Warehouse pays £1.5m to Ofgem fund after failing customers in debt". CityAM.
  41. ↑ Vaughan, Adam (7 June 2018). "SSE fined £1m for sending inaccurate customer statements". The Guardian.
  42. ↑ "UK: Regulating the regulators". Management Today. 1 June 1993. Retrieved 3 April 2020.
  43. ↑ The Times, 25 September 1993, p.21
  44. ↑ Young, A. (13 March 2001). The Politics of Regulation. Springer. ISBN   9780333978122 . Retrieved 3 April 2020.
  45. ↑ Buckley, Christine (30 December 1998). "Outgoing regulator attacks power plant ban". The Times.
  46. ↑ "Former EC leader to head Ofgem". Wales online. 13 May 2003. Retrieved 3 April 2020.
  47. ↑ "David Gray, Ofgem chairman, to retire in September". www.ofgem.gov.uk. 14 December 2020. Retrieved 27 November 2020.
  48. ↑ "Government selects Martin Cave as preferred candidate to be next Ofgem chairman". Ofgem. 25 June 2018. Retrieved 3 April 2018.
  49. ↑ "Andrew Wright appointed Interim CEO of Ofgem". Ofgem. 9 May 2013. Retrieved 3 April 2013.
This page is based on this Wikipedia article
Text is available under the CC BY-SA 4.0 license; additional terms may apply.
Images, videos and audio are available under their respective licenses.