What is Ofgem?
When reading news about the electricity and gas market, the term Ofgem often comes up. But what exactly is it and why is it worth knowing about? This guide provides answers to these questions and more.
Who is Ofgem?
Ofgem is the independent regulatory body or the ‘watchdog’ for the electricity and gas markets in Great Britain. Regulation of the energy industry became necessary in 1986 when the electricity and gas markets were freed up and businesses and households were given the power to choose their energy providers. Until then, the markets were heavily monopolised by the Central Electricity Generating Board (CEGB) and British Gas. Ofgem was formed in 2000 when the regulator for the electricity industry joined forces with the regulator for the gas industry.
Ofgem works with the government, the energy industry and other stakeholders to protect consumer interests, help to ensure a secure supply of gas and electricity, and to promote fair competition among energy suppliers. Put simply, it works to ensure customers get the fairest deal possible on these vital resources.
The body is governed by the Gas and Electricity Markets Authority (GEMA), which aims to help consumers to get good value for money and service from the energy market. Ofgem is funded by annual licence fees paid by the electricity and gas companies it regulates. However, it is completely impartial and independent of these businesses.
What does Ofgem stand for?
Ofgem stands for the Office of Gas and Electricity Markets.
What does Ofgem do?
Ofgem is tasked with regulating the companies that run the gas and electricity networks. Its overarching objective is to protect the interests of energy consumers, both now and in the future. It works to achieve this goal in a variety of ways. For example, it:
- promotes value for money for electricity and gas customers
- helps to ensure there is sufficient electricity and gas to meet consumer demand
- promotes sustainability through initiatives to encourage energy saving, protect vulnerable consumers, and support improvements to the environment in general
- delivers government consumer and environmental programmes
As a regulator, Ofgem has a number of important powers. It can carry out investigations and it can take enforcement action. It also has the power to grant licences.
The body has the authority to undertake market reviews of activities related to the generation, transmission and supply of electricity and the transportation and supply of gas. If Ofgem suspects unfair competition in the gas or electricity markets, it may also refer an investigation to the Competitions and Markets Authority (CMA).
Here are three types of enforcement action Ofgem can take:
- Licence conditions – if a company breaches the Gas Act 1986 or the Electricity Act 1989, Ofgem can issue financial penalties
- Competition law – Ofgem can issue directions and penalties for breaches of the Competition Act 1998 and Articles 101 and 102 on the Treaty on the Functioning of the European Union
- Consumer protection law – Ofgem can apply for an order to put a stop to breaches of specific consumer legislation
If a business or organisation is looking to enter the energy market, they must apply for a licence. Ofgem is responsible for granting or refusing licences. It also has the power to revoke licences when necessary.
Ofgem engages with stakeholders on a wide range of issues, including consumer issues, industry issues, environmentalism and sustainability and competition law. It uses a variety of means to gather and share information and insights. For example, it:
- carries out independent quantitative and qualitative consumer research
- hosts both domestic and non-domestic consumer panels
- conducts regular consumer surveys
- works with environmental organisations, campaigning groups and charities through advisory groups, briefing events, policy workshops and meetings
- holds industry meetings, forums, seminars and working groups
- collaborates with other regulators through the UK Regulators’ Network (UKRN)
- works with the CMA to promote fair competition in the energy sector
Ofgem introduces energy regulations where they are necessary to protect consumers’ interests. The body must ensure that all regulations are fair and proportionate.
Ofgem sets price controls on energy networks. This limits the amount of money that companies can make from charging consumers to use networks. This is done to ensure that customers get good value for money as they don’t usually get a choice over which network they use. It is also designed to ensure that companies operate the network sustainably and efficiently while they do business.
Ofgem uses a performance-based framework, known as the ‘RIIO’ model, to set price controls. RIIO is an acronym for Revenue=Incentives+Innovation+Outputs. RIIO was devised to keep network costs down by financially penalising companies that do not meet performance targets. It also rewards companies that innovate and work to better meet consumer needs.
How can Ofgem help me?
Ofgem provides free and impartial energy advice for business and household consumers. On its website, you can find a wide range of guides. From helping you to understand your energy bills and showing you how to switch to a better deal to guidance on generating renewable energy, it offers expert, unbiased information on a wealth of subject matter. It also publishes content on government and social schemes, such as the Feed-In Tariff and the Renewable Heat Incentive.
Ofgem provides information on energy price caps and how different caps could benefit you too. Furthermore, it publishes supplier comparison data and consumer research to help you to make an informed decision when it comes to shopping for gas and electricity.
Ofgem also provides reliable guidance on what to do if you want to complain about your energy bill or supplier. Although the regulator doesn’t directly deal with disputes, it collects information about the complaints that are made and reviews the markets to ensure that licensed companies are complying with legislation and their obligations.
Although you are unlikely to have any direct contact with Ofgem, the organisation helps energy customers on a daily basis through the work that they do in recording complaints, setting price caps and overseeing government and social schemes. Ofgem also ensures that your energy supplier is as transparent as possible with you by dictating what information must be provided on energy bills.
How do I contact Ofgem?
If you have any questions or queries about Ofgem’s policies or its functions, you can contact the organisation by email using the address firstname.lastname@example.org. You can also telephone 020 7901 7295 or fax 020 7901 7066.
Postal correspondence can usually be sent to Ofgem offices. Consumer affairs questions should be sent to the below address. However, please note that in line with government coronavirus guidelines, Ofgem requests that people get in touch by email or telephone rather than by post at this time.
32 Albion Street,
Our jargon buster
For more energy information, check out our handy jargon buster, which is full of quick and easy-to-understand explanations on some of the most commonly used industry terms.
If you want to find out more about Ofgem, energy initiatives or how to switch to a better deal for you, get in touch with us today.