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Regulation of (GB) Energy Markets

The Government is accountable for UK energy policy goals, and setting the framework which delivers them. The Electricity Act 1989, the Gas Act 1986 (not available online) and the Utilities Act 2000 are the main pieces of regulation supporting this framework.

There are some specific Government functions in current legislation such as: consents for power stations, defining the extent of the regulated industry by deciding on exemptions from the requirement of licences, appointing the members of the Gas and Electricity Markets Authority which sets Ofgems' strategy, and having the power to veto any proposal by the Regulator to modify licences. Wider social and environmental policy in relation to Energy is also an area Government addresses. The Government also tackles the growing international energy agenda, especially EU liberalisation and imports of oil and gas  

Within Government, the DTI leads on energy policy although many other Government departments, and the Devolved Administrations, have considerable energy policy interest. Most notably, DEFRA leads on energy efficiency, fuel poverty and the environment in general. The Sustainable Energy Policy Network (SEPN), whose Ministerial Group is co-chaired by the Secretary of States for Trade and Industry; and Environment, Food and Rural Affairs, provides a focal point for those involved in Energy Policy. Other bodies such as the Carbon Trust and the Energy Savings Trust are independent, not for profit organisations funded by the Government.

The Regulator

The Energy Regulator, known as Ofgem,  was established by the Utilities Act 2000. A duality approach, with a principal objective and general duties shared with the Secretary of State, ensures consistency of approach by the Government and the  Regulator. The principal objective of protecting the interests of consumers wherever appropriate through effective competition ensures consumers' interests are the heart of all decisions.

Ofgem is responsible for the regulation of GB energy markets, the Regulator was established to be demonstrably independent of Government to ensure that the regulatory process is free from political interference and to avoid creating unacceptable levels of uncertainty in the markets. It is for the Regulator to decide how it should balance, and interpret, its principal objective and general duties. The Secretary of State has no powers to direct the Regulator.

The Regulator's principal objective is to protect the interests of consumers, wherever appropriate by promoting effective competition. Key functions of the Regulator include issuing licences, the power to modify licences, setting price controls in the natural monopoly licensed sectors, investigating and penalising licencees who breach their licence.

The Regulator can be held to account in a number of ways: parliamentary scrutiny, appeals to the Competition Commission, judicial review, transparency through regulatory impact assessments, and consumer representation.

Consumer Body

The Utilities Act 2000 separated the Consumer Body (known as energywatch) from the Regulator. A consumer body separate from the Regulator is seen as an essential advocate for consumer interests. The Regulator's principal objective and general duties aim to strike a balance between business and domestic consumers, shareholders and the environment. energywatch's only responsibility is to represent consumers by resolving complaints, providing information to consumers and raising the interests of consumers to the Regulator, Government and utility companies. 

Licensed Businesses

Licencees

Overall, privatisation has placed into the hands of the private sector all generation, transmission, distribution and supply functions. (The exception to this is BNFL.) Regulation is carried out through licence conditions and codes of practice. Price regulation only exists where there are natural monopolies (pipes & wires businesses). An increase in investment, improved reliability and resilience as well as lower costs demonstrate efficiency gains made by the private sector. Having an independent Regulator provides licencees with a level of certainty and transparency in the decision making process.