Independent energy networks: what are they and what do we know about them?
Through changes to legislation in 1995 and 2000, Ofgem, the energy regulator introduced independent electricity distribution (IDNOs) and gas transporter (IGTs) companies who can compete with the main networks to build new connections and manage new electricity and gas networks within the geographical areas covered by the distribution networks.
They now serve nearly 3 million consumers, and the numbers are expected to grow in the future. As the official watchdog for energy consumers, we decided to undertake preliminary research to learn more about the rules that govern them and consider what the implications are for consumer costs and service levels, and whether changes need to be made as these networks grow in size.
This blog details the findings of our initial research. Competition between networks has offered greater choice and faster processes for developers, and theoretically the outcomes should be positive for consumers.
But what we have found is that although the lighter regulatory model which Ofgem developed appears suitable to allow companies to initially grow and compete within the market, it looks less appropriate when their customer bases start to achieve comparable sizes to the principal distribution networks. Competition in the area has not necessarily lowered prices for many domestic energy consumers, and there is limited evidence on how they perform on customer service. More needs to be done to assess how effective competition in the sector has been for domestic energy consumers.
Based on what we know to date, we believe that regulators and the industry should:
Ofgem should:
do more to assess how well competition is working, and set out a timeline for carrying out the review of the relative price control to which it had previously committed,
assess whether licence conditions are still fit for purpose for Independent networks when their customer base reaches a comparable size to distribution networks, and
consider introducing parity in the monitoring of performance standards such as Guaranteed Standards, where applicable.
We would like to see Independent networks:
increase their level of transparency and reporting on how they deliver for their customers. Despite their often smaller size, they deliver an essential service and operate a monopoly business, which comes with a responsibility to demonstrate their customers are well served.
explore how they can improve their engagement with their domestic and small business customers, particularly in serving the needs of customers in vulnerable circumstances. We are seeing a shift in this area from distribution networks, which customers on Independent networks shouldn’t miss out on.