The role of Ofgem
103. Ofgem plays a key role in many aspects of energy policy.
It operates and regulates two systems of trading certificates
(the Climate Change Levy Exemption Certificates and the Renewables
Obligation Certificates). It is involved in approving NFFO projects,
including current applications to transfer them to other locations.
It was primarily responsible for developing and implementing NETA,
and plays a key role in regulating trading arrangements. It is
responsible for network management and charging through its five
yearly review process. It has similar responsibilities for gas.
We were told by Ofgem that it issues about a 100 documents
a yearroughly an equal mix of consultations and decisions.
We are at a loss as to how smaller independent generating firms
can assimilate and comment on, where appropriate, such a large
volume of material.
104. We asked Ofgem to respond to a number of questions about
their remit and the priority accorded to environmental objectives.
Despite their response, we remain unclear about the interpretation
Ofgem places on key aspects of their remitin particular
their understanding of 'the interests of the consumer' and the
need to take account of the interests of 'future customers'. It
appears to us that there is some scope for Ofgem to interpret
such phrases in a manner which gives greater weight to environmental
105. We note that the intention of the House when discussing the
Utilities Bill was that it would enable Ofgem to harmonise its
approach with that of the Government.
We have already highlighted above some areas where Ofgem's approach
seems to be at variance. Ofgem indicated in their supplementary
memorandum that, had statutory guidance been issued, they would
have taken specific action to consider its impact on their policies;
and that, in its absence, they have not done so.
We note that the DTI has now, almost exactly one year after the
draft guidance was issued for consultation, laid before Parliament
the Social and Environmental Guidance. We are concerned that the
Government has delayed for so long, and find it curious that it
should choose to issue it nowbefore it has completed
its consultation on energy policy. We are also disappointed that
it does not appear to have published the results of its consultation
on the draft guidance, and that the extent of the changes to the
earlier draft are very limited.
106. In any case, we consider that statutory guidance to Ofgem
is unlikely to be sufficient. The PIU Review recommends a new
DTI objective which, if adopted, will place overriding importance
on environmental objectives.
In the light of the evidence it gave to us, it is difficult
to see how Ofgem can accommodate such an approach given its present
statutory remit. The PIU Review also highlights the likelihood
of further legislative Government interventions in the energy
sector which would increase the difficulties the regulator faces.
Ofgem's duties under the Utilities Act should therefore be
amended to incorporate as a primary objective the need to promote
sustainable development. Such an approach would harmonise
with previous recommendations which we made in relation to Ofwat.
107. More generally, Ofgem's approach to renewables and embedded
generation issues places great importance on putting in place
a regulatory framework in which 'renewables are not disadvantaged'a
phrase frequently used by Ofgem. Given that renewables constitute
such a small proportion of existing generating capacity, we think
there is a need to put in place shortterm arrangements which
provide positive encouragement for renewables.