Electricity Deregulation in the UK

The United Kingdom opened the electricity market by stages, from 30% in 1990 to 100% by 1998.

The 1989 Electricity Act created a system of independent regulation, headed by the Director General of Electricity Supply (DGES) covering England, Scotland and Wales. The regulator’s principal roles are to ensure that competition develops smoothly and effectively and where competition is inappropriate, to protect customers. In 1999, the regulatory offices for electricity and gas (OFFER and OFGAS) were merged to form the Office of Gas and Electricity Markets (OFGEM). Northern Ireland has its own regulatory body, the Office for the regulation of Electricity and Gas (OFREG).

The process of electricity deregulation has followed different paths in England and Wales, Scotland and Northern Ireland.

The electrical industry in England and Wales has four principal components; generation, transmission, distribution and supply. Generation and supply are open to competition and price is not regulated. Transmission and distribution, which are natural monopolies, are subject to price regulation. The National Grid Company, the transmission network operator in England and Wales, has a central role in the industry. It has a statutory duty to develop and to maintain an efficient, coordinated and economic transmission system and to facilitate competition in supply and generation. Distribution remains a monopoly business and under the Utilities Act 2000 it has become a separately licensable activity. Nine distribution companies operate 12 authorised distribution areas.

The Scottish electricity industry had an integrated structure prior to privatisation, which remains after vesting. Two companies, Scottish Power and Scottish and Southern Energy, the latter formed as a result of a merger between Scottish Hydro Electric and Southern Electric, cover the full range of electricity provision from generation, transmission and distribution through to supply.

The industry in Northern Ireland differs from that in the rest of the UK in a number of important ways. It serves a comparatively small area and only 1.6 million people, with 690,000 customers and until March 1995, it had been isolated from other networks. It is now a privately owned company operating under its own regulator in Northern Ireland.