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The House of Lords “Industry and Regulators Committee” has issued a call for evidence (https://committees.parliament.uk/call-for-evidence/512/), considering Ofgem’s role in the transition to net zero and whether changes are needed to its objectives and powers or its role in the wider energy system.
The Committee is seeking evidence on a number of questions, which examine how net zero relates to Ofgem’s other responsibilities such as affordability and the security of the UK’s energy supply, how Ofgem considers the interests of consumers, and Ofgem’s relationship to Government and Parliament. It also seeks feedback on how appropriate the current system of governance for the UK energy market is for meeting the Government’s net zero policy aims, and what may need to change to allow Ofgem to better deliver multiple outcomes.
The call for evidence comes in the wake of historic criticism, including from the CBI, that Ofgem is relying on an outdated policy mandate to regulate the industry and set price controls. Under its existing remit, Ofgem is required to keep the government’s climate policies in mind but its primary obligation is to protect the interests of energy consumers. The mandate has not been changed since 2011 after a proposed amendment to the Energy Act 2013 failed to be incorporated. Mid July 2019, a CBI spokesman said that “we believe that Ofgem should be supported with new statutory duties to enable prioritisation of decisions that promote clean growth and progress towards net zero, alongside fair competition and value for money to consumers”
When previously challenged, BEIS has stated that Ofgem’s existing statutory duty to protect consumers’ interests includes (a secondary duty to take into account) their interests in the reduction of emissions of targeted greenhouse gases – which means the updated Climate Change Act target of 100%. Further, they have stated that the Energy White Paper committed the Government to consulting on an energy sector strategy and policy statement (SPS) for Ofgem during 2021 (we have yet to see evidence of this). The SPS will apparently set out the strategic priorities and policy outcomes of the Government’s energy policy and, subject to Parliamentary approval, net-zero will be a driving theme in the SPS. It is understood that the SPS will impose a legal obligation on Ofgem to have regard to those strategic priorities and policy outcomes when exercising its regulatory functions and Ofgem will be required to report at the outset and annually on its progress and plans for implementation. (See https://questions-statements.parliament.uk/written-questions/detail/2021-06-17/17767).
In our view this is not strong enough. The statutory duties of Ofgem are outdated and not fit for rapid decarbonisation the climate crisis requires. The principal objective of protecting the interests of existing and future consumers (although including consumers interest in emissions reductions (see amendments introduced under the Electricity Act 2010, Section 16 and 17)) must be placed alongside an explicit and equal statutory obligation to “reduce gas-supply emissions of targeted greenhouse gases” and “reduce electricity-supply emissions of targeted greenhouse gases” (language and definitions as per Electricity Act 2010) as are required to meet the Government’s Net Zero targets, including reductions of emissions by 78% by 2035 (as such targets may be increased and timelines accelerated over time).
We have responded to the House of Lords call for evidence on this basis, requesting an explicit and primary statutory obligation to regulate energy markets in order to achieve the Net Zero targets and address the climate crises at lowest cost to current and future energy consumers.
