The Office of Gas and Electricity Markets ("Ofgem") has issued
revised guidelines concerning the application of competition law to the Energy
Sector.

Ofgem share power with the Office of Fair Trading ("OFT") for investigating
and punishing breaches of the Competition Act 1998 within the UK gas and electricity
markets. Ofgem has recently updated its guidance notes, outlining the terms
on which it will exercise its powers post modernisation of the European competition
law regime. One of the major changes in these guidelines is the recognition
that Ofgem's authority now extends to anti competitive agreements or abuses
of dominant positions which affect trade between member states of the EC and
not just within the UK.

Some other key points of the guidance notes are:

  • Ofgem will be especially vigilant to make sure that entry to the
    competitive gas and electricity markets is not restricted, this may involve
    interpreting the rules on abuse of dominance more strictly than in other sectors;
  • Ofgem's analysis in relation to market definition, market power,
    abuse and anti-competitive conduct may differ to analysis undertaken in other
    industries. Ofgem will take account of the following specific characteristics
    of the gas and electricity industries: the sunk costs of incumbent infrastructure,
    the importance of ensuring financial separation of competitive and non-competitive
    businesses, the existence of price controls and the low elasticity of supply
    and demand.
  • Ofgem sees analysis of related markets as being especially important
    in a gas and electricity context.
  • Ofgem will make a presumption of abuse where prices are found to
    be below the average variable cost.
  • Ofgem expects all gas and electricity undertakings to have competition
    compliance programmes in place.

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