In the energy sector, in addition to the principles of “Equality”, “Diversity” and “Inclusiveness”, the studies to be carried out on the “improvement of this sector” have become more remarkable in recent years. The fact that countries have made certain regulations in order to keep up with the changes experienced in the sector in their existing energy markets and tried to integrate with the best practices has also brought with it the fact that this sector needs a regulator. Of course, energy markets need a regulatory body, however, there should also be a structure that will keep the existing energy suppliers under control and protect the interests of local and commercial energy users.
For this purpose; I would like to mention two valuable institutions that fulfill the goals of “improving energy markets”, “establishing a financially strong, stable and transparent energy market that can operate under private law in a competitive environment” and “ensuring independent regulation and supervision” in this market, both in Turkey and in the UK; EPDK and ORGEM.
Before I tell you about these two institutions, I believe it would be useful to first touch on why such institutions are needed in the “energy market” and “energy sector” and how the historical process began. As is known, it is envisaged to create a competitive structure in all markets in line with the European Union (EU) directives. Many infrastructure services that were previously under public monopoly and are now privatized have been tried to be transformed into well-functioning markets with various administrative regulations. The European Commission has issued a Framework Agreement and a series of regulations in this direction. The main purpose of these Framework Agreements and regulations is to eliminate the monopoly situation in the market by providing access to these markets that exhibit natural monopoly characteristics and to create an effective, sustainable and competitive structure. Turkey, which is in the negotiation phase for full membership in the EU, has also made commitments in this direction.
In line with EU directives, Turkey has initiated the liberalization process in the electricity market and is harmonizing its legislation with EU regulations. In line with this, privatizations were completed first in the production area and then in the distribution area, and a system of granting licenses to private legal entities was initiated to carry out these activities. Supervision is of particular importance in this market in terms of supply security, consumer rights, and the public nature of the service. In order to create and sustain a competitive market environment, legal regulations have been prepared in line with EU directives regarding the methods of eliminating market disruptions and other issues, and sanctions to be applied in case of non-compliance with these regulations have been regulated.
With the Law on Amendments to the Electricity Market Law No. 4646 and the Law on the Natural Gas Market, the “Energy Market Regulatory Authority” (EPDK) was established and the decision-making body of the Authority, the “Energy Market Regulatory Board”, started its activities on 19.11.2001.
EPDK, in accordance with Article 4 of the Electricity Market Law; It is an institution with public legal personality and administrative and financial autonomy. The Ministry to which the institution is affiliated is the Ministry of Energy and Natural Resources. The institution; In order to provide sufficient, high-quality, continuous, low-cost and environmentally compatible electricity to consumers, to establish a financially strong, stable and transparent electricity energy market that can operate in accordance with the provisions of private law in a competitive environment and to ensure independent regulation and supervision in this market, has been stipulated by the Electricity Market Law No. 4628.
If we briefly list the duties of the Institution in Article 4, paragraph 2 of the Electricity Market Law No. 4628 dated 20/02/2001;
The Institution;
- Issuing the Board-approved licenses defining the authorized activities of legal entities and the rights and obligations arising from these activities,
- Arranging the existing contracts within the scope of the transfer of operating rights in accordance with the provisions of this Law,
- Monitoring the market performance,
- Establishing, amending and enforcing and supervising the performance standards and distribution and customer service regulations,
- Determining the pricing principles included in this Law,
- Determining the pricing principles to be applied in electricity sales to non-eligible consumers by taking into account market needs,
- Implementing the formulas regarding the adjustments that will be required due to inflation in these prices and supervising them,
- Ensuring that the market acts in accordance with this Law.
The EPDK is responsible for the duties and authorities assigned to it within the scope of the duties briefly listed and stipulated above, in the “Law No. 4628 on the Organization and Duties of the Energy Market Regulatory Authority”, “Law No. 4646 on the Natural Gas Market”, “Law No. 5015 on the The law is fulfilled within the framework of the Petroleum Market Law No. 5307, the Law on Amendments to the Liquefied Petroleum Gases (LPG) Market Law and the Electricity Market Law No. 6446.
When we look at the UK, we see that at the beginning of the last century, two energy regulatory bodies (Gas and Electricity Market Authority (GEMA)) merged to create “OFGEM” in response to the opening of energy markets, which supervised the energy market in the UK and ensured that suppliers adhered to certain standards, while also protecting gas and electricity consumers.
In other words, OFGEM is the shortened version of the phrase “The Office of Gas & Electricity Markets”. It was established in 2000 by the merger of the Office of Electricity Regulation (OFFER) and the Office of Gas Supply (Ofgas).
In the UK, just like in the case of Turkey, when previously nationalized gas and electricity companies were privatized, a gradual liberalization in energy sales took place and the supply markets were completely opened in the late 1990s. At that time, almost all of the gas in the UK was supplied by “British Gas” and the lack of a competitive environment brought about the possibility of freedom of choice between different energy companies for all households in the UK.
Although OFGEM was initially responsible for setting maximum price limits for gas and electricity, it has evolved into a supervisory and regulatory body over time as an environment emerged where more energy suppliers could compete to do business in the UK.
Today, OFGEM is an official government regulatory body funded by the annual licence fee paid by UK energy companies, as well as an independent National Regulatory Authority recognised by EU Directives. It carries out its duties and powers within the framework of some laws similar to the EMRA. “UK Gas Act 1986”, “UK Electricity Act 1989”, “Public Services Act 2000”, “Competition Act 1998” and “Business Act 2002” etc.
Unlike the EPDK, OFGEM does not set energy prices in the UK and each energy supplier is free to set their own prices. In the UK this was done to encourage competition in the market, but the economic downturn was eased somewhat by the introduction of a cap on the amount that suppliers can charge on standard variable rate energy tariffs, following pressure from the UK government to end ‘fake’ energy prices.
OFGEM is also responsible for protecting the interests of both commercial and domestic energy consumers, through a range of means, including investigating energy supplier behaviour and providing support to vulnerable consumers. It also helps to ensure that energy companies meet their social and environmental responsibilities. If a new energy company enters the market, OFGEM’s role is to ensure that it complies with all current rules, regulations and standards, including how it approaches new customers and how it deals with existing customers.
Another role of OFGEM that is different from the EPDK is its so-called “assurance role”. OFGEM is also responsible for meeting its social obligations, such as “offering energy companies a range of payment methods” and “supporting customers from vulnerable or low-income households”.
On this point, a few days ago (12.12.2024), OFGEM announced a series of planned improvements to the energy market aimed at providing greater flexibility and better support for consumers, particularly those struggling with debt. Announced on Thursday, 12 December, these changes include the potential for energy suppliers to offer low or zero fixed charges, and enhanced protections for households facing financial difficulties.
One of the key proposals is to introduce a structure under the price cap that would allow consumers to choose the tariffs that best suit their needs, with “zero fixed charges” being introduced. Feedback from tens of thousands of consumers who responded to ORGEM’s call last Thursday highlighted a desire for lower or eliminated fixed charges, which many argue would make it easier for them to manage their bills and repay their debts.
However, a memorandum of understanding on “Energy and Climate Dialogue” was signed between Turkey and the UK in recent days, and this valuable memorandum of understanding, which includes important collaborations such as the transition to clean energy, low-carbon hydrogen economy, grid modernization, regional interconnections and small modular reactors, has taken an important step towards energy supply security and independence.
As can be seen, these two valuable Institutions that independently supervise and regulate “energy markets” in Turkey and the UK have similarities and some minor differences. The most similar feature in the establishment of both Institutions is “improving energy markets” can be considered as “establishing a financially strong, stable and transparent energy market that can operate subject to private law provisions in a competitive environment” and “ensuring independent regulation and supervision” in this market.
Sources
Ofgem Annual Report and Accounts 2022-23
Who are Ofgem? | The Energy Shop
Ofgem: The Energy Market Regulator | Utility Saving Expert
Who Are Ofgem & Why Are They Important?
Ofgem Proposes New Energy Market Reforms | UK Construction News
What Does Ofgem Do for Your Business? | SwitchPal
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