Energy Regulation in Great Britain

Transcription

1 INOGATE ITS Project Energy Regulation in Great Britain Alena Aliakseyeva, Office of Gas and Electricity Markets Capacity building for the Regulatory Authorities of the INOGATE Partner Countries Vienna 10 October 2013

2 GB industry structure: gas and electricity PRODUCTION TRANSMISSION DISTRIBUTION MONOPOLY COMPETITIVE SUPPLY

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4 GB regulator: OFGEM Office of Gas and Electricity Markets Independent regulatory body powers provided under primary legislation independent of Government though accountable to Parliament Independent of energy companies Protecting consumers is our first priority We do this by promoting competition, wherever appropriate, and regulating the monopoly companies which run the gas and electricity networks Other priorities include: helping to secure Britain s energy supplies by promoting competitive gas and electricity markets - and regulating them so that there is adequate investment in the networks, and contributing to the drive to curb climate change and other work aimed at sustainable development We recover our regulatory costs from the network companies that we licence ( 49m in ). They are obliged to pay an annual licence fee which is set to cover our costs. Regulatory staff: c.400

5 Regulation of energy networks Network companies are natural monopolies, not subject to competitive pressures Unregulated can increase price and lower quality RPI-X regulation A price control is a limit on the amount of revenue that companies can collect over the course of the price control period allowed revenues are adjusted by inflation (RPI) and an X factor that represents anticipated efficiency gains (or cost increases) Companies are incentivised to beat the regulators assumptions If they do, they keep the benefit until the next price control At next control, consumers benefit RPI-X has been used and developed in GB economic regulation for last 20+ years across telecoms, gas, electricity, water, airports, rail, postal services and air traffic control. Also used internationally. Strong incentives to reduce prices but also has delivered significant investment Lower costs for consumers Additional profits for company Allowed revenues Company s actual costs Y1 Y2 Y3 Y4 Y5 1 ST price control review 2 ND price control review

6 RIIO framework RPI-X performed well over past 20 years: increased efficiency, lower prices BUT: falls short of what we need now: industry faces unprecedented challenges better deal for consumers greater focus on outputs longer-tern planning Revenue = Incentives + Innovation + Outputs Reliability and Availability Connection Conditions Environmental impact Safety Customer Service Social Objectives

7 Enforcement and Competition Policy Enforcing licence conditions We monitor companies to ensure they abide by their licence conditions. If they are found in breach of these conditions the Enforcement Committee of the Authority can issue an enforcement order to ensure companies comply with their licence conditions impose financial penalties of up to 10 per cent of the licensee s turnover. Enforcing competition law If a company or business entity is found to have infringed UK or EU competition law, the Enforcement Committee of the Authority can: accept binding commitments or issue directions to stop the behaviour impose financial penalties of up to 10 per cent of the company s world-wide turnover. Enforcing consumer protection law We monitor companies to ensure that they comply with European and UK consumer protection law. Where a breach has occurred, we can apply to court for an enforcement order requiring a trader to comply. We can also accept undertakings from the trader that the trader will not continue or repeat the conduct. Market investigation references We carry out market reviews of activities connected with the generation, transmission and supply of electricity and the transportation and supply of gas. We may also make a market investigation reference to the Competition Commission where we have reasonable grounds for suspecting that any feature or combination of features prevents, restricts or distorts competition in the gas and electricity markets. We are currently undertaking a review of our approach to enforcement: examining and improving Ofgem s internal decision-making procedures obtaining a broad range of views from interested parties on the impact and efficiency of our enforcement work, including our approach to penalties and redress.

8 Enforcement penalties levied by Ofgem Date Company Breach Penalty May 2013 SSE Breach of marketing licence conditions (telephone and face-to-face sales activities) March 2012 Feb 2012 Jan 2011 EDF National Grid Gas, Northern Gas Networks National Grid Gas Breach of marketing licence conditions (aspects of the licences governing the information it gives when selling to customers; telesales) Failure to comply with Emergency Standards Misreporting regulatory information (misreporting on a gas mains replacement programme) 10.5m 4.5m to vulnerable customers 4.3m and 900,000 respectively Penalty moneys are collected by Ofgem and passed over to HM Treasury (Central Government) Current legislative proposal Ofgem to have a new power to order companies to make redress direct to customers who have suffered detriment as result of breach of obligations This can currently occur voluntarily: e.g. Energy supplier EDF has agreed to pay a package worth 4.5m - including 3.5m to customers - after an Ofgem investigation into how it tried to make sales to customers. 8m

9 Energy market monitoring and analysis In addition to collecting data directly relevant for network regulatory activity and enforcement... Proactive Market Surveillance Medium to Long term Security of Supply Surveillance Capacity Assessment (electricity) Report The amended Electricity Act requires Ofgem to produce a report with an assessment of different electricity capacity margins and the risk to security of supply associated with each alternative. Ofgem's capacity assessment report is to be delivered to the Secretary of State every September Security of Supply Report Retail Market Analysis Typical domestic consumption values Supply market indicators Consolidated segmental statements Consumer Insight research

10 Market monitoring and analysis current projects Retail Area Wholesale markets REMIT Smarter Markets Projects Retail Market Review, retail market monitoring, mis-selling and pricing investigations Electricity Market Reform (led by Central Government), European Framework Guidelines/network codes, Third Package Implementation EU regulation No 1227/2011 on wholesale energy market integrity and transparency (REMIT) has been in force since 28 December REMIT is aimed at preventing market abuse in wholesale energy markets. Smart Metering, Smarter Markets Strategy, Energy Theft

11 Further information about Ofgem: