Page type: primary-anchored (mirrors Electricity Act 1989)
Electricity Act 1989
The Electricity Act 1989 is the foundational statute for the regulation of electricity generation, transmission, distribution, and supply in Great Britain. Originally enacted to privatise the electricity industry, it has been heavily amended and now serves as the framework for all GB electricity regulation.
Source file: 1989-electricity-act.md
Part I: Electricity Supply
The principal objective and general duties (ss.3A to 3F)
The overarching purpose of the regulatory framework is "to protect the interests of existing and future consumers" of electricity conveyed by distribution or transmission systems (s.3A(1)). This is the "principal objective" that binds both the Secretary of State and the Gas and Electricity Markets Authority (GEMA, operating as Ofgem).
Consumer interests are defined broadly. They include the public's interest in meeting net zero and carbon budget duties under the Climate Change Act 2008, security of supply, and fulfilment of designated regulatory objectives (s.3A(1A)). The principal objective must be pursued "wherever appropriate by promoting effective competition" (s.3A(1B)). Competition is a tool, not the goal itself.
Secondary duties require the Secretary of State and Authority to ensure all reasonable demands for electricity are met, that licence holders can finance their obligations, and that sustainable development is promoted (s.3A(2)). They must have particular regard to the interests of vulnerable consumers: the disabled, chronically sick, pensioners, those on low incomes, and rural residents (s.3A(3)).
The Authority must consult the Health and Safety Executive on all electricity safety issues and the Office for Nuclear Regulation on nuclear-related safety issues (s.3C). These duties do not apply when the Secretary of State is exercising consenting functions under sections 36 to 37 (s.3D(2)).
The licensing framework (ss.4 to 10)
The prohibition. It is a criminal offence to carry on any of eight specified activities without a licence: generating electricity, participating in transmission, distributing electricity, supplying electricity, co-ordinating electricity flows (the system operator function), participating in the operation of an electricity interconnector, providing a smart meter communication service, and performing the code manager function (s.4(1)). The penalty is an unlimited fine on indictment (s.4(2)).
Generation from stored energy, including batteries, is explicitly included within the generation licensing requirement (s.4(3ZA) to (3ZB)).
The eight licence types. The Authority (Ofgem) may grant (s.6(1)):
- Generation licence, authorising generation of electricity
- Transmission licence, authorising participation in transmission
- Distribution licence, authorising distribution of electricity
- Supply licence, authorising supply of electricity to premises
- Electricity system operator licence, authorising co-ordination and direction of electricity flows across the transmission system (held by NESO)
- Interconnector licence, authorising participation in operating an electricity interconnector
- Smart meter communication licence, authorising the smart meter communication service (held by DCC)
- Code manager licence, authorising governance of a designated electricity licence document
Structural separation rules. The Act enforces separation between certain activities by statute (not just by licence condition): - A distribution licensee may not also hold a generation or supply licence (s.6(2)) - An interconnector licensee may not hold any other licence type (s.6(2A)) - The ESO, smart meter, and code manager licences each require a corresponding Gas Act 1986 licence, reflecting the dual-fuel nature of NESO, DCC, and code management (s.6(2ZA), (2B), (2C))
Exemptions. The Secretary of State may exempt persons or classes from the licensing requirement by order (s.5). Exemptions may be conditional and are subject to revocation.
Licence conditions (ss.7 to 8A)
Licences may include any conditions the grantor considers "requisite or expedient" having regard to the duties in section 3A (s.7(1)). This is a broad power. Conditions may require: - Compliance with Authority or Secretary of State directions (s.7(3)(a)) - Consent before certain actions (s.7(3)(b)) - Referral of questions or contracts for Authority determination or approval (s.7(3)(c) to (d)) - Entry into use-of-system agreements, for transmission and distribution licensees (s.7(2)) - Charge increases to fund payments to other licensees, including gas licensees (s.7(3A))
Standard conditions are incorporated by reference into each licence type (s.8A). The Authority may deviate from standard conditions when granting a particular licence, but must give 28 days notice, consult, and may be vetoed by the Secretary of State (s.8A(2) to (5)).
General duties of licence holders (s.9)
Electricity distributors have a statutory duty to "develop and maintain an efficient, co-ordinated and economical system of electricity distribution" and to promote competition in supply and generation (s.9(1)).
Transmission licensees have the same twin duties for transmission (s.9(2)).
Powers of licence holders (s.10)
Transmission and ESO licensees automatically receive compulsory acquisition powers (Schedule 3) and street works/wayleave powers (Schedule 4). Distributors and others may receive these powers if their licences so provide (s.10(1) to (2)).
Transmission independence (ss.10A to 10O)
Transmission and interconnector licensees must be certified as independent by the Authority (s.10A). Three certification routes exist, implementing the EU Third Energy Package unbundling requirements: full ownership unbundling, the independent system operator (ISO) model, and the independent transmission operator (ITO) model (s.10E). Relevant producers and suppliers are prohibited from holding shareholder or appointment rights in certified transmission/interconnector operators (s.10M).
Licence modification (ss.11A to 11H)
The Authority may modify the conditions of a particular licence or the standard conditions of any licence type (s.11A(1)). Before doing so it must give 28 days notice, set out the proposed modifications and reasons, and invite representations. The Secretary of State may direct the Authority not to proceed (s.11A(5)).
Licence holders and other affected parties may appeal to the Competition and Markets Authority (CMA), but CMA permission is required (s.11C). The CMA may refuse permission if the impact is immaterial, the appeal is trivial or vexatious, or there is no reasonable prospect of success (s.11C(4)).
Duties of electricity distributors: the connection duty (ss.16 to 24)
An electricity distributor has a duty to connect any premises on request from the owner, occupier, or an authorised supplier (s.16(1)). The distributor must provide necessary lines and plant (s.16(2)) and must have regard to designated strategic plans when deciding how to connect (s.16(2A)).
Exceptions apply where the distributor is prevented by circumstances beyond its control, where connection would breach safety regulations, where it would not accord with designated strategic plans, or where it is not reasonable in all the circumstances (s.17(1)). Disconnection requires at least seven working days notice (s.17(3)).
Connection disputes may be referred to the Authority within 12 months of connection (s.23).
Enforcement (ss.25 to 28)
The Authority has three enforcement tools:
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Compliance orders (s.25). Where the Authority is satisfied that a regulated person is contravening a licence condition or relevant requirement, it "shall" make a final order. This is a mandatory duty, not a discretion. Provisional orders may be made urgently (up to 3 months duration). The compliance order route is the exclusive remedy for licence condition breach, barring negligence claims (s.25(3)(b)).
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Financial penalties (s.27A). The Authority may impose a penalty "of such amount as is reasonable in all the circumstances." Maximum: 10% of the person's turnover (s.27O). The Authority must publish a statement of its penalty policy (s.27B).
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Consumer redress orders (s.27G). Where a contravention has caused loss, damage, or inconvenience to consumers, the Authority may order the regulated person to remedy the consequences. Also capped at 10% of turnover, and the combined total of penalties plus compensation cannot exceed 10% (s.27O).
Before using any of these tools, the Authority must consider whether it would be more appropriate to proceed under the Competition Act 1998 (s.25(4A), s.27A(2)).
The Authority also has information-gathering powers: it may require any person to produce documents or furnish information by notice (s.28). Failure to comply is a criminal offence. Intentional destruction of required documents carries an unlimited fine (s.28(4) to (5)).
Safety regulations (s.29)
The Secretary of State may make regulations for regular and efficient supply and for public safety from dangers arising from electricity generation, transmission, distribution, and supply (s.29(1)). The Electricity Safety, Quality and Continuity Regulations 2002 are made under this power.
Renewables obligation (ss.32 to 32M)
The Secretary of State (for England and Wales) and Scottish Ministers (for Scotland) may impose a renewables obligation on electricity suppliers by order (s.32(1)). The obligation requires designated suppliers to produce a required number of renewables obligation certificates (ROCs) to the Authority by each specified date (s.32(6)). The RO is now closed to new generating stations, but existing obligations continue.
Certificate purchase obligation (ss.32N to 32Z2)
These sections, inserted by the Energy Act 2013, underpin the Contracts for Difference (CfD) supplier obligation, the mechanism by which CfD payments to generators are funded through a levy on electricity suppliers.
Generating station consent (s.36)
No generating station may be constructed, extended, or operated without consent from the appropriate authority (s.36(1)). Stations up to 50 MW are exempt (350 MW in Wales) (s.36(2)). English and Welsh onshore wind stations are exempt; they use the planning system instead (s.36(1D)). In England, stations above 50 MW require development consent under the Planning Act 2008 rather than s.36 consent.
Overhead line consent (s.37)
Overhead electric lines require consent from the appropriate authority (s.37(1)). Lines up to 20 kV serving a single consumer are exempt, as are lines within occupied premises (s.37(2)).
Consumer protection: performance standards (ss.39 to 42C)
The Authority may prescribe standards of performance for electricity suppliers (s.39) and distributors (s.39A). Failure to meet a prescribed standard triggers a right to compensation for affected customers (s.39(3)).
Competition powers (s.43)
The Authority has concurrent competition enforcement powers with the CMA. This covers both market investigations under the Enterprise Act 2002 and antitrust enforcement under the Competition Act 1998 (anti-competitive agreements and abuse of dominance) in relation to electricity activities (s.43(2) to (3)).
Maximum resale prices (s.44)
The Authority may direct maximum resale prices for electricity. Any excess charged above the maximum is recoverable by the purchaser (s.44(1), (4)).
Part II: Reorganisation of the Industry (ss.65 to 95)
Part II is largely spent. It provided the legal machinery for privatising the electricity industry in 1990, transferring property from the Central Electricity Generating Board (CEGB), Area Boards, and Scottish Boards to successor companies. These provisions have been executed and are of historical interest only.
Part III: Miscellaneous and Supplemental
Security of electricity supplies (s.96)
The Secretary of State may direct licence holders and exemption holders to take or refrain from action to preserve the security of electricity infrastructure or mitigate civil emergencies (s.96(1) to (2)). This is the most powerful provision in the Act. Section 96 directions override "any other duty imposed on [the recipient] by or under this Act" (s.96(3)). Directions are laid before Parliament unless national security or commercial interests prevent disclosure (s.96(4) to (5)).
Alteration of licensable activities (s.56A)
The Secretary of State may by order add new activities to the licensing framework or remove existing ones (s.56A(1)). This power has been used to bring smart meter communication and (via the Energy Act 2023) code management within the licensing regime.
Key themes and architecture
Consumer protection as organising principle. The Act's entire regulatory apparatus is oriented toward the principal objective of consumer protection (s.3A(1)). Competition is explicitly framed as a tool for achieving this, not an end in itself (s.3A(1B)).
Licensing as the gateway. The criminal prohibition in s.4 makes licensing the mandatory gateway to participation in the electricity industry. Eight licence types now cover the full range of activities from generation to code management.
Enforcement hierarchy. The Authority has graduated enforcement powers: compliance orders (mandatory), financial penalties (discretionary, up to 10% of turnover), and consumer redress orders (discretionary, up to 10%). The exclusive remedy provision (s.25(3)(b)) channels all licence enforcement through the Authority rather than private litigation.
Secretary of State reserve powers. The Secretary of State retains strategic powers: veto over licence modifications (s.11A(5)), security directions that override all other duties (s.96), power to alter licensable activities (s.56A), and the exemption order power (s.5).
Dual-fuel integration. The ESO, smart meter, and code manager licences all require corresponding Gas Act 1986 licences, reflecting the increasingly integrated regulation of electricity and gas.
Defined terms
See the full defined terms register in the source file.
Cross-references
See the full cross-references table in the source file.
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