Last updated: 22/10/2020 | Estimated Reading Time: 5 minutes
What is Ofgem?
If you're ever monitored news about the energy industry, curious about how shifting regulations and market changes will impact how much you pay for your gas and electricity tariff, you may have encountered Ofgem. Here's Ofgem setting-and then raising-an energy price cap. Here's Ofgem swooping in to allocate households left deserted by a bankrupted energy firm to another supplier. And here's Ofgem with data about the energy market, from the profits of large energy suppliers to the portion of us who live in fuel poverty.
But what exactly is Ofgem, what does it do and what role does it play in the UK's energy market?
In This Guide:
Ofgem stands for the Office of Gas and Electricity Markets. It's a non-ministerial government department, tasked with regulating and overseeing the companies that operate the UK's gas and electricity networks. As an industry watchdog and regulator, it's similar to Ofsted (for education), Ofcom (for the broadcasting, telecommunications, and postal industries), and Ofwat (for water). There are more than 60 such regulatory bodies in the UK, supervising everything from markets (the Competition and Markets Authority) to food (Food Standards Agency) to charities (the Charity Commission).
In the energy industry, Ofgem enacts price controls and regulations to achieve its principal objective of protecting "the interests of existing and future gas and electricity consumers," both domestic and industrial.
Ofgem achieves this by
- promoting value for money
- promoting security of supply and sustainability
- supervising and developing markets and competition
- implementing regulation and delivering government schemes
As part of its commitment to energy customers of the future, it helps energy industry make environmental improvements, following government initiatives and to meet climate and carbon goals.
Ofgem works alongside by independently from government and the energy industry and other stakeholders, as an National Regulatory Authority, under EU framework.
What does Ofgem mean for you?
Energy customers will likely have little direct contact with the regulator, but Ofgem is behind the scenes overseeing and influencing nearly ever part of the energy market. This covers everything from prices to relief schemes to customer service to what appears on your bills.
In recent years, Ofgem has stepped in to ensure the energy market is as fair and transparent as possible for consumers, making it simple for them to find information about tariffs and suppliers and compare them to find the best energy deal, from the supplier with the best customer service.
Ofgem also protects the interests of consumers in the following ways:
While Ofgem doesn't handle consumer complaints about energy suppliers themselves (your first port of call should be the supplier itself or, failing that, the Ombudsman), they do keep records about the number and type of complaints made about suppliers as part of its market monitoring activity.
Ofgem publishes this data to allow consumers to check how suppliers perform with customer service, including which suppliers receive the most-and the least-complaints. When comparing energy tariffs, you might want to review the watchdog's complaints league tables, and avoid suppliers which most frequently earn customers' ire. Ofgem can also impose regulations on the wider market or restrictions on specific suppliers in response to complaints and poor consumer service records. For example, in 2019 Ofgem prohibited small supplier Economy Energy from taking on new customers for three months following high levels of complaints registered with the Energy Ombudsman.
Administering price caps:
Ofgem sets the level of and administers price caps on energy, as legislated by the government. Currently Ofgem manages two price caps: one on default and standard variable tariffs, implemented in 2019, and another on pre-payment tariffs, which originated in 2017.
Overseeing social and environmental schemes:
Ofgem ensures suppliers' compliance with schemes designed to make the energy market accessible and affordable for vulnerable consumers, monitoring government schemes including the Warm House Discount and Winter Fuel Payments. It also oversees their participation in schemes to protect the environment, including the Renewable Heat Incentive.
Determining what appears on energy bills:
Ofgem specifies what information must be included on energy bills, requiring suppliers provide you with details about your energy consumption, the name of your specific tariff, and how much you'll spend over the next year if you stick with the same tariff (your personal projection).
Providing a safety net after supplier failure:
2018 and the beginning of 2019 saw the failure of a record number of energy suppliers, leaving hundreds of thousands energy suppliers stranded. When energy suppliers cease trading, Ofgem steps in. Their safety net protects the credit balances and supplies of households left without a supplier and, through a process called Supplier of Last Resort (SoLR), assigns those accounts to a new supplier within days.
Publishing guides and energy market information:
Ofgem publishes data about suppliers and guides to the energy market, to increase public knowledge and empower consumers to compare energy prices and find better deals.
How effective is Ofgem?
It's difficult to really judge the effectiveness of a market regulator. Its impact is felt in every pound saved by customers protected by price caps or by those who switch based on Ofgem's information, every discount and protection received by vulnerable households, every kilogram of carbon that isn't released into the atmosphere because a household switched to a renewable heating system under the Renewable Heat Incentive, every minute a customer doesn't have to spend on a helpline to dispute a bill from a supplier with poor customer service.
One way Ofgem's efficacy can be measured is via the fines and redress payments it levies on the industry. Ofgem can investigate and financially penalise energy firms for "breaching their licence conditions to supply gas and electricity, acting anti-competitively or breaching consumer protection law." Since 2010, it has imposed more than £263 million of fines and redress payments on energy suppliers, including penalties for failing to meet deadlines for the rollout of advanced energy meters, for the mis-selling of tariffs, for poor handling of billing and customer complaints, and for practices that made switching to a new energy supplier difficult.
Money paid as fines by energy suppliers goes to the Treasury or to schemes that directly help energy customers-first those which have been directly let down by the supplier and then to energy charities, trusts, and organisations.