UK government launches review of Ofgem
Published on 23rd Dec 2024
Consultation points towards greater regulatory powers and ability to investigate and enforce against energy operators
The Department for Energy Security and Net Zero (DESNZ) has opened a call for evidence on a review of Ofgem's powers. The consultation, which opened on 19 December, asks whether Ofgem is appropriately equipped to meet Great Britain's net-zero goals in line with technological growth and advancement within the energy sector.
As part of the review, DESNZ is exploring increases in Ofgem's enforcement and investigation powers and heightening of the consequences for energy sector operators in the event of a breach of obligations. The consultation is open for responses until 28 February 2025.
Increased investigation and enforcement powers
The government is considering giving Ofgem increased investigation and enforcement powers intended to improve consumer outcomes and better manage potential breaches and evidence.
DESNZ considers that Ofgem faces limitations in its regulatory framework, particularly in accessing timely and accurate information. Unlike other regulators, Ofgem's investigative powers are inconsistent across the areas they regulate. For instance, under the REMIT regulations, Ofgem can compel individuals to interview, but this power is absent under their sectoral powers. Additionally, some activities in the energy market, like solar panel installation, do not require a license, which limits Ofgem's regulatory reach.
More penalties and compliance orders
DESNZ is considering changes to make it easier for Ofgem to impose lower-level penalties for minor breaches.
Ofgem must ensure reasonable penalties, requiring thorough investigations that discourage penalties for low-level non-compliance due to high costs and resource demands. The government considers the current short statutory deadlines for confirming provisional orders and imposing penalties leave insufficient time for Ofgem to gather evidence, which it believes allows companies to repeatedly engage in low-level non-compliance.
The government is considering extending deadlines and allowing penalties without thorough investigations by default, leaving businesses to have to demonstrate mitigating circumstances during appeals.
Increasing the costs of bad practice
DESNZ is considering removing or increasing the current cap on penalties of 10% of company turnover.
Current rules allow Ofgem to issue fines up to 10% of a company's turnover, but the government is concerned this may not be sufficient to deter non-compliance, particularly where some businesses operate on low turnover models. The consultation seeks views on whether the current approach is effective in deterring non-compliance, and aims for a system of appropriate fines that exceed compliance costs to promote competition based on quality service rather than predatory pricing.
Automatic compensation
DESNZ is seeking views on whether the current consumer compensation framework is fit for purpose, the level of payments to consumers for incidents including outages, and proposals for delivering improvements to automatic compensation to consumers.
Please get in touch with one of our experts if you would like to discuss your response to the consultation.
Tomi Agbonifo, a paralegal with Osborne Clarke, contributed to this Insight.
