Office of Gas and Electricity Markets
Encyclopedia
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).
, the Competition Act 1998
, the Enterprise Act 2002
and the Energy Act 2004
, the Energy Act 2008 and the Energy Act 2010
) as well as arising from directly effective European Community 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 protect the interests of consumers, where possible by promoting competition.
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.
Sir John Francis Mogg was appointed for a second five year term as the non-executive Chairman of Ofgem in October 2008. In the same year he was also elected for a second term as Chairman of the European Regulators Group for Electricity and Gas (ERGEG), and as the President of the Council of European Energy Regulators (CEER). Sir John became a Life Peer on 18th April 2008 and on the 28th May 2008 he was created Baron Mogg of Queens Park in The County Of Sussex.
Alistair Buchanan was appointed Chief Executive of Ofgem in 2003. He is also a member of the Business Energy Forum and the UK Energy Research Partnership (UKERP) and previously a Non Executive Director for the state-owned company Scottish Water.
Morover, Ofegm is divided in Ofgem (Smarter Grids & Governance, Markets, Sustainable Development and Group Finance Director) and in Ofgem E-Service containing Group Functions: Environmental Programmes, Operations/HR, Information Management and Technology, Finance and Risk Management, and Commercial: Offshore, Legal, Smart Metering Delivery.
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.
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 gradually got the freedom 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.
Before there was competition on domestic markets, Ofgem 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.
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.
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.
Electricity
Electricity is a general term encompassing a variety of phenomena resulting from the presence and flow of electric charge. These include many easily recognizable phenomena, such as lightning, static electricity, and the flow of electrical current in an electrical wire...
and downstream natural gas
Natural gas
Natural gas is a naturally occurring gas mixture consisting primarily of methane, typically with 0–20% higher hydrocarbons . It is found associated with other hydrocarbon fuel, in coal beds, as methane clathrates, and is an important fuel source and a major feedstock for fertilizers.Most natural...
markets in Great Britain
Great Britain
Great Britain or Britain is an island situated to the northwest of Continental Europe. It is the ninth largest island in the world, and the largest European island, as well as the largest of the British Isles...
. It was formed by the merger of the Office of Electricity Regulation (OFFER) and Office of Gas Supply (Ofgas).
Powers and Duties of Ofgem
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 2000Utilities Act 2000
The Utilities Act 2000 is an Act of the Parliament of the United Kingdom that deals with the gas and electrical markets in the UK. It mainly modified the Gas Act 1995 and Electricity Act 1989. One of the greatest changes was that integrated electricity companies were required to have separate...
, the Competition Act 1998
Competition Act 1998
The Competition Act 1998 is the current major source of competition policy in the UK along with Enterprise Act 2002. The act provides an updated framework for identifying and dealing with restrictive business practices and abuse of a dominant market position....
, the Enterprise Act 2002
Enterprise Act 2002
The Enterprise Act 2002 is an Act of the Parliament of the United Kingdom which made major changes to UK competition law with respect to mergers and also changed the law governing insolvency bankruptcy.-Structure:*Part 1 The Office of Fair Trading...
and the Energy Act 2004
Energy Act 2004
The Energy Act 2004 is an Act of the Parliament of the United Kingdom.-Section 198 - Short title, commencement and extent:The following orders have been made under this section:* *...
, the Energy Act 2008 and the Energy Act 2010
Energy Act 2010
The Energy Act 2010 is an Act of the Parliament of the United Kingdom pertaining to the regulation of energy usage and markets, with amendments to similar pieces of previous legislation...
) as well as arising from directly effective European Community 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 protect the interests of consumers, where possible by promoting competition.
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.
Structure of Ofgem
The Gas and Electricity Markets Authority is governed by the Chairman Sir John Francis Mogg, executive members as well as non-executive members.Sir John Francis Mogg was appointed for a second five year term as the non-executive Chairman of Ofgem in October 2008. In the same year he was also elected for a second term as Chairman of the European Regulators Group for Electricity and Gas (ERGEG), and as the President of the Council of European Energy Regulators (CEER). Sir John became a Life Peer on 18th April 2008 and on the 28th May 2008 he was created Baron Mogg of Queens Park in The County Of Sussex.
Alistair Buchanan was appointed Chief Executive of Ofgem in 2003. He is also a member of the Business Energy Forum and the UK Energy Research Partnership (UKERP) and previously a Non Executive Director for the state-owned company Scottish Water.
Morover, Ofegm is divided in Ofgem (Smarter Grids & Governance, Markets, Sustainable Development and Group Finance Director) and in Ofgem E-Service containing Group Functions: Environmental Programmes, Operations/HR, Information Management and Technology, Finance and Risk Management, and Commercial: Offshore, Legal, Smart Metering Delivery.
The Development of Competition in the UK market
The liberalisation and privatisation of the energy markets in the United Kingdom began with the Margaret ThatcherMargaret Thatcher
Margaret Hilda Thatcher, Baroness Thatcher, was Prime Minister of the United Kingdom from 1979 to 1990...
Government in the 1980s (often called the Thatcher-Lawson agenda, due to the key role of Nigel Lawson
Nigel Lawson
Nigel Lawson, Baron Lawson of Blaby, PC , is a British Conservative politician and journalist. He was a Member of Parliament representing the constituency of Blaby from 1974–92, and served as the Chancellor of the Exchequer in the government of Margaret Thatcher from June 1983 to October 1989...
in the Thatcher government cabinet). Aspects of the Ofgem model have been adopted by Eu
European Union
The European Union is an economic and political union of 27 independent member states which are located primarily in Europe. The EU traces its origins from the European Coal and Steel Community and the European Economic Community , formed by six countries in 1958...
legislation.
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
Monopoly
A monopoly exists when a specific person or enterprise is the only supplier of a particular commodity...
on supplying all domestic gas and electricity consumers respectively in Great Britain. Between 1996 and 1999, domestic energy consumers gradually got the freedom 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.
Before there was competition on domestic markets, Ofgem 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.
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.
Against the background of unprecedented increases in world fuel prices
Price of petroleum
The price of petroleum as quoted in news generally refers to the spot price per barrel of either WTI/light crude as traded on the New York Mercantile Exchange for delivery at Cushing, Oklahoma, or of Brent as traded on the Intercontinental Exchange for delivery at Sullom Voe.The price...
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.
See also
- Energywatch (consumer watchdog)
- Electricity marketElectricity marketIn economic terms, electricity is a commodity capable of being bought, sold and traded. An electricity market is a system for effecting purchases, through bids to buy; sales, through offers to sell; and short-term trades, generally in the form of financial or obligation swaps. Bids and offers use...
- Energy policy of the United KingdomEnergy policy of the United KingdomThe current energy policy of the United Kingdom is set out in the Energy White Paper of May 2007 and Low Carbon Transition Plan of July 2009, building on previous work including the 2003 Energy White Paper and the Energy Review Report in 2006...
- Energy use and conservation in the United KingdomEnergy use and conservation in the United KingdomEnergy use in the United Kingdom stood at 3,894.6 kilogrammes of oil equivalent per capita in 2005 compared to a world average of 1,778.0. In 2008, total energy consumed was 9.85 exajoules - around 2% of the estimated 474 EJ worldwide total...
- Energy switching services in the UKEnergy switching services in the UKEnergy switching services are a kind of company that has come to exist since the EU began deregulating the gas and electricity markets, to open them to international competition, in 1996. Progress has been uneven across member countries, but in the UK there is now open competition among suppliers...
- Price controls
- Fuel pricesPrice of petroleumThe price of petroleum as quoted in news generally refers to the spot price per barrel of either WTI/light crude as traded on the New York Mercantile Exchange for delivery at Cushing, Oklahoma, or of Brent as traded on the Intercontinental Exchange for delivery at Sullom Voe.The price...