Any company wanting to:
- supply gas or electricity
- run a gas or electricity network, or
- generate electricity
must either be exempt from the requirement to hold a licence for these activities or be licensed by Ofgem, under its powers in the Gas and Electricity Acts.
Ofgem does not issue or grant exemptions from the requirement to hold a licence. It is a matter for those persons engaging in the generation, transmission, distribution or supply of electricity, or the supply, shipping or transportation of gas, to satisfy themselves as to whether they are exempt. The criteria for exemptions are set out in:
- The Electricity (Class Exemptions from the Requirement for a Licence) Order 2001, and
- The Gas Act 1986 (Exemptions) (Nos.1, 2, 3 and 4) Orders 1996 (subject to certain exceptions set out in Schedule 2A to the 1986 Act).
NB: Ofgem does not license the offshore gas industry which is licensed by the Department of Energy and Climate Change (DECC).
Companies have a range of obligations to both customers and industry which they must fulfil under the conditions of their licences. Ofgem monitors companies to ensure they abide by their licence conditions. If they are found in breach of these conditions, or their obligations under the Standards of Performance, the options available to Ofgem include:
- issuing an enforcement order to ensure companies comply with their licence conditions, and/or
- imposing financial penalties of such an amount as is reasonable in all of the circumstances of the case up to 10 per cent of turnover of the licensee’s business.
Further information about how decisions about financial penalties are reached can be found in the Authority's ‘Statement of policy with respect to financial penalties'.