What is Ofgem and why do we need it?
Ofgem (Office of Gas and Electricity Markets) is the energy regulator. It is an official government regulatory body, like Ofcom or the FCA and, as such, has certain powers and duties. It is governed by the Gas and Electricity Market Authority (GEMA) and funded by levies on the energy companies it regulates. The levies are paid annually, but Ofgem is independent of the energy suppliers.
Ofgem’s history lies in the liberalisation of the gas and electricity market in the UK in 1986. Until then, almost all gas and electricity was provided by British Gas, which, when it first started in 1812, became the first public utility company in the world. In 1986, when the market was opened up to competition, and households were given the ability to choose their supplier, a regulator was required to help customers confidently run an energy comparison or switch their energy supplier.
At the time, Ofgem was responsible for setting the maximum price, but these controls were removed between 2000 and 2002. Today, Ofgem is responsible for protecting consumers' interests — this can be through investigations into supplier behaviour, imposing fines on suppliers that have breached their license conditions, and promoting sustainability and support for vulnerable consumers.
What powers and responsibilities does Ofgem have as energy regulator?
The principle objective of Ofgem is to protect consumers of gas and electricity. According to Ofgem, it does this by:
- Promoting the security of the UK's energy supply, and ensuring it's sustainable for future users
- Promoting value for money when it comes to energy tariffs
- Supervising and developing competition within the market
- Regulating government schemes and helping deliver them.
Ofgem and the energy price cap
Consumers will probably be most familiar with Ofgem because of the energy price cap it operates. The price cap sets a limitation on the amount that energy suppliers are allowed to charge customers who are on standard variable and prepayment tariffs, as standard variable tariffs in particular are usually the most expensive tariffs on the market.
The price cap is reviewed four times a year and can be raised or lowered depending on a range of factors, including the situation in the wholesale energy market which can affect the price at which suppliers buy their energy. This then has a knock-on effect as far as the prices they charge customers are concerned.
The price cap's current level (until 31 December) for an average use household paying by direct debit is £1,717.
To discover more about standard variable tariffs, read the Uswitch guide about what makes an energy plan standard. If you are concerned your energy bill is too high, then let your energy supplier know as soon as possible.
Does Ofgem set the price of energy?
No, Ofgem does not control the price of gas and electricity beyond setting the energy price cap level. The price of energy is set by the gas & electricity suppliers. The energy suppliers say the price of energy is mostly influenced by supply and demand, which affects the cost of buying gas and electricity on the wholesale markets, as well as regional network and distribution costs.
For more information read the Uswitch guide about energy price comparison by region.
Since the privatisation of the energy markets in 1986, new companies have been free to supply gas and electricity and set their own prices. Ofgem regulates the market but it does not set the price of energy in Britain.
Ofgem and the Confidence Code
The Confidence Code is a voluntary code of practice for energy price comparison sites. This code is set out by Ofgem, and Uswitch is accredited by this code. In 2013, Ofgem also took over the Confidence Code and has set out requirements for energy price comparison sites, including Uswitch, to follow key principles to ensure switching energy suppliers is an easy and reliable process for consumers.
The regulator reviews the Code periodically so that it continues to provide value to consumers and does not mislead or confuse customers who are comparing energy prices.
Ofgem regularly encourages households to consider switching their energy supplier as a way of keeping the market competitive. Due to the fact that energy companies are free to set the price of gas and electricity charged to households across Britain, competition among the suppliers is important in order to drive prices down (or simply keep them from skyrocketing out of control).
As a result, the Confidence Code plays an important role in ensuring that consumers can trust the energy comparison sites they use to help them switch their gas and electricity.
How does Ofgem regulate energy companies?
As the energy market regulator, Ofgem is the government body standing between energy suppliers and customers. Ofgem is the organisation that ensures that any new energy company complies with certain standards, or that energy companies are responding to complaints and fulfilling their social and environmental obligations.
You can find out how to make a complaint about your energy supplier in our guide.
For example, energy companies of a certain size are responsible for ensuring low-income households get support for energy-saving upgrades (ECO), and must pay customers who generate their own energy a fee (Feed-in Tariffs). Ofgem ensures that energy companies comply with these obligations. You can see more about feed-in tariffs with the Uswitch guide about the Feed-in Tariff.
Ofgem also ensures that energy companies comply with their daily obligations when it comes to approaching new customers or dealing with existing customers, and has the power to set fines for non-compliance.
Ofgem has fined energy companies:
- For mis-selling to customers by doorstep and phone
- For erroneously charging its own customers fees that did not apply to them
- For their complaints handling methods
- Taking too long to offer connections to electricity for rural households.
Ofgem also ensures that suppliers notify customers of their own cheapest plans on every bill they send out.
