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Ed Davey announces further regulatory changes in his Annual Energy Statement



United Kingdom

Ed Davey yesterday announced further regulatory changes to the energy market.

Ed Davey yesterday announced further regulatory changes to the energy market including:

  • annual reviews of the state of competition in the energy markets to address the questions being raised of late - whether competition is working in our energy markets. It was announced that Ofgem would run the competition assessment with the first report to be delivered by Spring next year. The report is likely to look in depth and across the energy sector at profits and prices, barriers to entry and consumer engagement. Any new regulation that may arise out of the competition assessment may be further down the road, especially as Ofgem's Retail Market Review took three years. It will be important for interested stakeholders to engage with Ofgem early in this process.

  • consultation on the introduction of criminal sanctions for anyone found manipulating energy markets and harming the consumer interest. Such criminal sanction is likely to apply to the EU regulation on wholesale energy market integrity and transparency (REMIT) that came into force this year, thus making market participants' implementation of REMIT critical.

  • an aim for customers to be able to switch suppliers more easily. Currently, the suppliers have 3 weeks to switch customers. It is hoped that a short switching period would encourage consumers to switch supplier which in turn would help ensure that consumers get the best deal. Consideration of consumer law such as "cooling off" period will be only one of the factors this programme will need to consider.

Ofgem in its response to the Statement said that they plan to improve transparency of energy company profits by requiring the companies to publish more information about their trading activities. Ofgem also plans to undertake a review of energy supplier pricing to better understand how  the companies allocate revenues and costs between their generation and supply businesses. One of the issues raised by the Energy and Climate Change Committee was the lack of transparency between the profits where the Big 6 is a generator and a retailer. We expect that vertical integration of generation and supply will continue to be hotly debated this winter.

The Energy and Climate Change Committee's questioning of the Big 6 earlier this week illustrated the growing frustration with the energy market. The suppliers giving evidence were also frustrated with the current energy debate. As Ed Davey's announcements deal with medium and longer issues, it is unlikely that the current energy debate will disappear any time soon.

If you would like to discuss any of these points further, please contact Charles WhiddingtonMauzima Bhamji or your usual Fieldfisher contact.

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