MULTI-LEVEL GOVERNANCE STRUCTURE OF THE UK ENERGY SECTOR

Introduction

The UK energy sector operates through a multi-level governance structure in which powers and responsibilities are distributed among the UK Parliament, central government, independent regulators, system operators, devolved governments, local institutions, and private energy companies. The system covers electricity, gas, renewable energy, nuclear energy, energy networks, energy markets, consumer protection, energy security and the transition towards Net Zero.

The principal statutory foundations include the Electricity Act 1989, Gas Act 1986, Utilities Act 2000, Climate Change Act 2008 and Energy Act 2023. The Energy Act 2023 has significantly modernised governance by strengthening Ofgem's strategic role and creating the National Energy System Operator (NESO).

1. UK Parliament – Primary Legislative Level

The first level of governance is the UK Parliament, which establishes the statutory framework within which the energy sector operates.

Important legislation includes:

Electricity Act 1989 – regulates electricity generation, transmission, distribution and supply and establishes important licensing arrangements.

Gas Act 1986 – provides the principal statutory framework for gas markets and licensing.

Utilities Act 2000 – established the modern institutional framework for Ofgem.

Climate Change Act 2008 – establishes the statutory framework for carbon budgets and climate objectives.

Energy Act 2023 – reforms energy-system governance, industry-code governance, electricity licensing and system planning.

The Energy Act 2023 specifically introduced reforms concerning the Independent System Operator and Planner, energy-code governance and Ofgem's strategic functions.

Thus, Parliament provides the legal foundation for the entire governance hierarchy.

2. UK Government and DESNZ

The second level consists of the UK Government, principally through the Department for Energy Security and Net Zero (DESNZ).

The Government establishes broad energy policy and regulatory direction. It determines major national objectives concerning:

energy security;

electricity generation;

renewable energy;

decarbonisation;

consumer protection;

energy infrastructure;

nuclear energy;

energy efficiency; and

Net Zero.

The current governmental framework identifies government as responsible for setting the broad energy-policy and regulatory framework, while Ofgem functions as the independent economic regulator.

DESNZ also maintains formal framework relationships with public bodies including Ofgem and NESO, establishing lines of accountability and institutional responsibility.

3. Ofgem – Independent Economic Regulatory Level

The Office of Gas and Electricity Markets (Ofgem) represents the central regulatory level of the UK energy governance structure.

Ofgem is a non-ministerial government department and independent economic regulator. Its statutory powers arise principally from the Gas Act 1986, Electricity Act 1989, Utilities Act 2000 and subsequent legislation.

Its major functions include:

licensing energy companies;

regulating electricity and gas networks;

protecting consumers;

promoting competition;

regulating network revenues;

enforcing licence conditions;

monitoring energy markets;

regulating aspects of industry codes; and

supporting security of supply and Net Zero objectives.

The Energy Act 2023 expanded the statutory objectives of the Secretary of State and GEMA so that relevant decisions must take account of the Government's Net Zero and carbon-budget targets.

Therefore, Ofgem occupies a position between governmental policy-making and operational energy markets.

4. Gas and Electricity Markets Authority (GEMA)

The Gas and Electricity Markets Authority (GEMA) is the statutory authority that governs Ofgem.

Ofgem is essentially the institutional body through which the Authority's functions are carried out. GEMA exercises statutory regulatory powers relating to gas and electricity markets.

Its principal objective is to protect the interests of existing and future consumers, while promoting effective competition where appropriate.

This creates an important distinction:

Parliament → establishes statutory powers → GEMA exercises statutory regulatory authority → Ofgem performs regulatory functions operationally.

5. National Energy System Operator (NESO)

A further important level is the National Energy System Operator (NESO).

The Energy Act 2023 established the legal framework for a more independent system operator and planner. NESO performs system-wide planning and operational functions and provides expert advice to government and Ofgem.

Its functions include:

electricity-system operation;

whole-system planning;

long-term system analysis;

coordination of energy-system development;

supporting security of supply; and

providing expert advice to government and regulators.

The governance model therefore separates policy, economic regulation, and system operation/planning.

6. Devolved Governments

The UK energy governance structure is also affected by devolution.

Scotland, Wales and Northern Ireland possess different degrees of legislative and administrative competence in energy-related areas.

In Great Britain, Ofgem's core regulatory remit is reserved to the UK Parliament and UK Ministers, while certain energy-related policy matters fall within the competence of the Scottish Parliament/Government and Welsh institutions.

This produces a shared or overlapping governance model, rather than a completely centralised system.

For example, devolved institutions may have important responsibilities concerning:

planning;

environmental policy;

building standards;

local energy initiatives;

renewable-energy development;

heat policy; and

aspects of energy transition.

Consequently, energy projects may require coordination between UK-level institutions and devolved authorities.

7. Regional and Local Governance

The governance structure increasingly extends below the national level.

Ofgem has recognised the importance of sub-national energy governance, particularly because electrification, distributed generation, flexibility and Net Zero require greater regional coordination.

Ofgem's reforms have proposed Regional Energy Strategic Planners (RESPs) to improve strategic planning at the sub-national level. Distribution Network Operators (DNOs) continue to have important responsibilities for real-time network operations.

Local authorities may also influence energy development through:

planning decisions;

local development plans;

building regulation;

transport policy;

district heating initiatives;

local renewable-energy projects; and

climate and Net Zero programmes.

Thus, modern energy governance increasingly follows a:

National → Devolved → Regional → Local

structure.

8. Energy Companies and Network Operators

The private sector constitutes another important governance layer.

Electricity and gas networks are generally operated by licensed companies subject to regulatory oversight. Electricity network companies operate regional monopolies and are regulated by Ofgem to ensure that infrastructure is developed and operated efficiently in the interests of consumers.

Energy suppliers, generators, transmission operators and distribution companies therefore exercise operational functions, but their activities remain constrained by:

licences;

statutory duties;

regulatory decisions;

industry codes;

competition law;

consumer-protection rules; and

environmental obligations.

This demonstrates the UK model of regulated private participation.

9. Industry Codes and Code Governance

Industry codes form another specialised layer of governance.

Energy codes contain detailed technical and commercial rules governing relationships between market participants.

The Energy Act 2023 introduced major reforms by giving Ofgem stronger strategic powers over designated industry codes and creating a framework for licensed code managers.

This is important because energy governance is not performed solely through Acts of Parliament. Detailed operational rules are also developed through a combination of:

legislation + licences + regulatory decisions + industry codes.

10. Competition and Consumer Governance

The Competition and Markets Authority (CMA) also contributes to energy governance.

The CMA may exercise competition-law functions concerning energy companies, including investigations into potentially anti-competitive conduct. Ofgem itself has concurrent competition powers under legislation such as the Competition Act 1998.

This produces another layer:

Energy regulation + competition regulation + consumer protection.

The purpose is to prevent regulated energy markets from becoming insulated from competitive and consumer-protection principles.

IMPORTANT CASE LAWS

1. National Grid plc v Gas and Electricity Markets Authority [2010] EWCA Civ 114

This is an important authority concerning the interaction between energy regulation and competition law.

The case concerned National Grid's position in the market for domestic gas meters. The Authority found that National Grid had abused its dominant position contrary to the Competition Act 1998. The Competition Appeal Tribunal substantially upheld the finding, and the Court of Appeal considered the subsequent appeal.

Legal Principle

The case demonstrates that energy-sector undertakings remain subject to competition law in addition to sector-specific regulation.

It therefore illustrates the multi-level character of UK energy governance:

Ofgem/GEMA regulatory authority + competition-law enforcement + judicial oversight.

2. R (British Gas Trading Ltd) v Gas and Electricity Markets Authority [2019] EWHC 3048 (Admin)

This case concerned Ofgem/GEMA's implementation of the domestic energy price-cap regime under the Domestic Gas and Electricity (Tariff Cap) Act 2018.

The case illustrates the judicial review of regulatory decision-making in the energy sector and demonstrates that Ofgem's decisions must remain within the statutory framework established by Parliament.

Legal Principle

The case demonstrates the relationship between:

Parliament → statutory mandate → Ofgem/GEMA → regulated suppliers → judicial review.

3. Wales & West Utilities Ltd v Competition and Markets Authority [2026] EWHC 99 (Admin)

This recent case illustrates continuing judicial scrutiny of major regulatory and competition decisions involving energy-network companies.

The case involved Wales & West Utilities and included GEMA, National Grid entities and other energy-sector participants as interested parties.

Legal Significance

It demonstrates that the UK energy governance structure remains subject to administrative-law supervision by the courts, particularly where regulatory and competition decisions affect regulated network businesses.

Multi-Level Governance Model

The UK energy sector can therefore be represented as follows:

LEVEL 1 – UK PARLIAMENT
↓
Creates primary legislation and statutory powers

LEVEL 2 – UK GOVERNMENT / DESNZ
↓
Sets national energy policy and strategic direction

LEVEL 3 – OFGEM / GEMA
↓
Independent economic regulation, licensing and consumer protection

LEVEL 4 – NESO
↓
System operation, whole-system planning and technical advice

LEVEL 5 – DEVOLVED GOVERNMENTS
↓
Scotland, Wales and Northern Ireland exercise their respective devolved functions

LEVEL 6 – REGIONAL / LOCAL AUTHORITIES
↓
Planning, local energy development and regional coordination

LEVEL 7 – NETWORK OPERATORS / SUPPLIERS / GENERATORS
↓
Practical operation and investment in the energy system

LEVEL 8 – INDUSTRY CODES AND MARKET PARTICIPANTS
↓
Detailed technical and commercial governance

LEVEL 9 – COURTS AND COMPETITION AUTHORITIES
↓
Judicial review, competition enforcement and legal accountability

Conclusion

The multi-level governance structure of the UK energy sector is based on the distribution of authority rather than complete centralisation. Parliament creates the legal framework; DESNZ develops national policy; Ofgem/GEMA provides independent economic regulation; NESO undertakes system-wide planning and operation; devolved governments exercise their respective competences; local and regional institutions influence infrastructure development; and private energy companies operate within statutory licences and regulatory rules.

The modern structure is increasingly focused on energy security, consumer protection, competition, system resilience and Net Zero. The Energy Act 2023 represents an important stage in this evolution by strengthening Ofgem's strategic role, reforming industry-code governance and establishing the legal framework for NESO.

The case law demonstrates that this governance structure is not merely administrative. Regulatory decisions remain subject to competition law, statutory limits, administrative law and judicial review, thereby creating a system of institutional checks and accountability.