REMIT Ofgem consultation

New Legislation
Published: 6th September 2021
Area: Energy

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Ofgem REMIT guidance

In June 2021 energy regulator Ofgem consulted on changes to its principal documents underpinning the enforcement framework, these being the Enforcement Guidelines and Sectoral Statement of Policy with respect to Financial Penalties and Consumer Redress. That consultation closed on 4 August 2021. Ofgem carried out the consultation in order to update these documents in response to changes in the energy market and the enforcement landscape.  

On 17 August 2021 Ofgem published a separate consultation on its two REMIT enforcement documents namely REMIT Procedural Guidelines and the REMIT Penalties Statement which are not part of the general enforcement framework described above. Ofgem’s three objectives for undertaking this consultation are to maintain alignment with its proposed updated general enforcement framework, to reflect the fact that the United Kingdom has left the European Union and to make REMIT processes clearer and more efficient. 

The two documents updated for the proposed changes have been provided in Annex One and Annex Two to the main consultation document. This latest consultation closes on 28 September 2021.  

Background to REMIT

REMIT is the energy sector market abuse regime.  REMIT in fact derives from EU law - EU Regulation No 1227/2011 on wholesale market integrity and transparency – which by virtue of the European Union (Withdrawal Agreement) Act 2020 is now (alongside its accompanying implementing regulation) a part of EU retained law in Great Britain.    

Ofgem is tasked with enforcing REMIT, and its REMIT enforcement powers derive from the Electricity and Gas (Market Integrity and Transparency) (Enforcement etc.) Regulations 2013 (2013 Regulations). The Procedural Guidelines set out how Ofgem will use these powers, whilst the Penalties Statement discharges Ofgem’s obligation in the 2013 Regulations to publish a statement of its policy on imposing penalties and determining their amount. 

REMIT Procedural Guidelines Changes

Recent enforcement case

This REMIT consultation is timely as Ofgem announced on 24 August 2021 that it had taken an action against ESB Independent Generation Trading Limited (IGT) and Carrington Power Limited (Carrington) for breaching REMITBetween March 2019 and September 2020, IGT and Carrington submitted misleading data to National Grid Electricity System Operator (NGESO) about the minimum amount of energy the Carrington gas power plant could supply. This caused NGESO to purchase more energy from the plant than needed when the plant was called on to generate in the Balancing Mechanism. 

As result, Ofgem found IGT and Carrington to be in breach of Article 5 of REMIT which prohibits market participants from engaging in or attempting to engage in market manipulationIGT and Carrington have agreed to make a collective payment of £6m to Ofgem’s voluntary redress fund. 

The proposed changes are: 

  • consistent with the wider enforcement regime changes, to reduce the three settlement windows to one, giving a 30% discount; 
  • consistent with the wider enforcement regime changes, power for the settlement decision to be made by Ofgem’s Director of Enforcement rather than a full settlement committee, in “appropriate” cases, which Ofgem says will be “less complex and serious” cases; and 
  • structural and clarificatory changes to the document, for example making the settlement process more efficient by giving flexibility for Ofgem to seek an indication in writing from the person under investigation that they are interested in settlement before Ofgem goes down that route.  Also, incorporation of reference to “alternative action”, which has been used but not currently mentioned. 

REMIT Penalties Statement Changes

The proposed changes are: 

  • consistent with the wider enforcement regime changes, a significant reduction in the number of the stated factors that Ofgem may consider when determining the seriousness of a breach (and clarification that this is a non-exhaustive list); 
  • consistent with the wider enforcement regime changes, Ofgem will calculate detriment and gain only where proportionate, reasonable and practicable to do so, so that it does not need to engage in resource intensive analysis where, for example, a breach was only attempted or financial impact was not material;
  • and changes in approach to calculating financial gain. 
Conclusion

These proposed changes to the REMIT enforcement regime will bring it into alignment with Ofgem’s broader regulatory enforcement framework. 

As for REMIT compliance more generally, we can expect to see Ofgem maintain its focus on monitoring and enforcement. Those caught by the REMIT prohibitions and obligations should ensure they are familiar with the most recent guidance published by the Agency for the Cooperation of Energy Regulators (ACER) in July, which is summarised here. (link) 

Notwithstanding Brexit, ACER guidance remains useful and relevant compliance material for those involved in the Great Britain whole energy markets.  The key definitions in REMIT – “inside information”, “market manipulation” and “attempt to manipulate the market” - are the same in both Great Britain and EU REMIT regimes, and Ofgem has stated that in carrying out its monitoring and enforcement responsibilities it intends to continue to interpret REMIT having regard to ACER’s guidance. 

For further information on changes to Ofgem’s enforcement framework, contact Andrew Whitehead or another member of the energy team. 

Get In Contact

Andrew is a specialist energy regulatory and contracts lawyer, who works with a range of utility and developer clients and funders to help them manage regulatory and legal risk in a fast moving and complex environment.

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