Jargon Buster – Who to call when the lights go out!

When did the RECs appear?

Prior to 1990, the generation and transmission of electricity in England and Wales was handled by the Central Electricity Generating Board (CEGB). Consumers received their electricity supply from 12 Area Electricity Boards (AEBs).

Under the Conservative government of 1979-1992, many public organisations were privatised – from British Gas and British Telecom to British Aerospace and Jaguar. In December 1990, the government privatised the 12 AEBs, which became known as Regional Electric Companies (RECs).

The reasoning was that the sell-off would increase efficiency, productivity and competition, leading to lower prices and better service for consumers.

The two Scottish companies that used to handle generation, transmission, distribution and supply were privatised in 1991.

Once the privatised gas and electricity markets were opened in 1996 and 1998 respectively, consumers were able to choose which company they bought their energy from, leading to competition between the various suppliers.

The RECs were defined as Publicity Electricity Suppliers (PESs), allowed to use other distributions networks for a regulated fee in order to supply electricity beyond their franchise areas.

How did deregulation affect the market?

Around 1999, the energy regulator Ofgem set up measures to separate energy generation from energy sales. Licensed distribution network operators (DNOs), replaced the PESs under the Utilities Act of 2000.

The deregulation continued in 2001 when Ofgem launched its New Electricity Trading Arrangement (NETA), a forced restructuring process for energy companies, which was intended to lead to market-led prices.

What are the DNOs?

As a consequence of deregulation, there are now seven separate Distribution Network Operators (DNOs), working across the 14 Public Electricity Suppliers (PES) areas in the UK. The DNOs are:

Electricity North West, Northern Ireland Electricity, Northern Powergrid, Scottish and Southern Energy, SP Energy Networks, UK Power Networks and Western Power Distribution.

Some DNOs will cover more than one area, for example, Scottish Power covers the PES areas of South Scotland, North Wales, Merseyside and Cheshire, while UK Power Networks covers London, South East England and Eastern England.

As the electrical infrastructure – towers, cables etc – that delivers electricity to homes and businesses in the UK is owned and run by these DNOs, they are the people to call if there’s a power cut in your area

What distinguishes the energy suppliers from the DNOs?

Following deregulation, the DNOs became the successors to the distribution side of the RECs. Crucially, while the DNOs own and run the network, they are not permitted to sell electricity direct to consumers. That’s the job of the energy companies.

The situation today

Currently, energy is transported to homes, offices, factories, public buildings and elsewhere by the DNOs and sold to the customer by the energy companies.

Consumers do not have a choice which DNO brings electricity (and gas) to their premises; it depends on where they are based geographically. However, they do have a choice which utilities company they buy their energy from.

The sale of electricity (and gas) to the consumer has been dominated by what has become known as the Big Six, with another 20 or so smaller companies in operation. Consumers are encouraged to switch suppliers to find the best deals and new legislation due by the end of this year is designed to make switching quicker and easier.

However, Ofgem has carried out continual reviews and investigations into concerns about the way competition has been working – for example, the fact that energy firms often raise prices at the same time.

The future may see further legislation to ensure a fairer deal for customers.