Ofgem: The energy market regulator

A Guide to The Office of Gas and Electricity Markets

Keeping energy companies in check, Ofgem is the government regulator for gas and electricity markets in Great Britain. Ofgem protects your interests as a consumer and works on your behalf to ensure you are treated fairly.

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Ofgem has an impact on every UK household. It monitors the energy companies that keep our lights and heating on, make our homes comfortable and provide us with power, in a similar way that Ofcom regulates what we watch on the TV and the FSA regulates that the food we buy is safe and exactly what it says on the tin.

The history of Ofgem

At the turn of the last century, two energy regulatory bodies merged to form Ofgem, otherwise known as the Office of Gas and Electricity Markets, in response to the opening of energy markets.

There was a gradual liberalisation of the sale of energy when previously nationalised gas and electricity companies became privatised, until the supply markets were fully opened in the late 1990s. Before this, few gas and electricity suppliers existed. Almost all gas in the UK was provided by British Gas, and almost all electricity was provided the Central Electricity Generating Board (CEGB).

When the freedom to choose between different energy firms became a new possibility for households all over the UK, Ofgem took on the responsibility of protecting consumers from exploitation.

Originally Ofgem was in charge of setting maximum price boundaries for gas and electricity. However, the landscape has since evolved to give energy companies the power to set prices, as long as those prices can be kept low.

Why energy suppliers pay Ofgem

Governed by the Gas and Electricity Market Authority (GEMA), Ofgem is entirely independent of, but funded by, the energy companies it regulates. The funding is taken through levies that are paid annually by suppliers.

A levy is a tax or financial charge that can be used strategically to transform the way an industry works. For example, when it comes to climate change in the energy sector, the Climate Change Levy (CCL) relates to financial charges that are intended to discourage environmental impact, along with tax relief schemes rewarding businesses that increase energy efficiency or become more environmentally friendly.

Levies introduced by Ofgem enable the organisation to regulate the industry to make sure that customers are not mistreated.

The role and aims of Ofgem

Observing the way energy companies in the UK behave, Ofgem regulates organisations whether they are large and small, long established or just starting up. Using those market observations, Ofgem works to protect the interests of consumers, by:

  • promoting value for money,
  • promoting security of supply and sustainability, for present and future generations of consumers, domestic and industrial users,
  • supervising and developing markets and competition,
  • regulating the delivery of government schemes.

In other words, Ofgem has five key aims:

  1. lower bills,
  2. reduce environmental damage,
  3. improve reliability and safety,
  4. improve quality of service,
  5. benefit society as a whole.

In recent years, Ofgem has reported on the increasingly positive impact from the new and innovative ways that energy is being generated, delivered and consumed. This includes better quality of service, lessened environmental impact, as well as improved reliability and safety.

Ofgem's powers and responsibilities

Responsible for protecting consumer interests, Ofgem works to assure gas and electricity customers get a fair deal and monitors both supplier performance and customer satisfaction.

Ofgem is the reason that energy firms must publish bad customer reviews. This transparency provides the public with an insight into how they may be treated if they became a customer, enabling them to make informed decisions when signing up for a new energy supplier contract.

The supply of energy is also protected by Ofgem, making it the body that would be accountable if there was an energy shortage. It firmly places responsibility on Ofgem to ensure the supply of gas and electricity meets demands.

To reach its objectives, Ofgem has the power to:

  • fine suppliers for breaching licenses,
  • launch investigations,
  • observe supplier behaviour,
  • promote sustainability,
  • support vulnerable customers,
  • take levies,
  • implement energy acts, schemes, incentives and discounts.

Ofgem also has a safeguaring role. It encourages energy companies to maintain social obligations, such as offering a range of payment methods and supporting customers who are vulnerable or from low-income homes.

The authority monitors debt owed by customers, the number of prepayment customers and the number of households that are disconnected or cut off, whilst ensuring energy firms comply with obligations, incentives and discounts such as the:

The Confidence Code

Utility Saving Expert energy price comparison technology is fully accredited by Ofgem and our comparison site fulfils all requirements set out through their Confidence Code.

Designed to govern energy comparison sites, the Confidence Code sets out a process for consumers to switch energy supplier that is both easy and reliable. Reviewed periodically, the Confidence Code plays an important role for households all over the UK by enabling the public to trust energy comparison sites and make smart savings on their energy bills.

When you visit UtilitySavingExpert.com, you can be confident that our comparison tool delivers impartial, balanced results in a clear, fair way. The information we provide won't be misleading or confusing and it will always be completely honest and balanced, helping you find the cheapest deals for gas and electricity and supporting you to switch easily.

As we are 100% independent, we won't ever try to sway your decision. Instead, we provide you with the facts and means to make your own judgment based on a variety of factors like price, energy provider reviews and background information about the deals we show. Our comparison tool is free to use and can save you hundreds of pounds per year.

Ofgem encourages households to shop around, compare deals and feel empowered to switch energy provider. This is a great way to find energy tariffs that offer great value for money, benefiting you on an individual basis whilst keeping the market competitive.

As the UK's leading socially conscious comparison site, we share many of the values and objectives laid out by Ofgem. Dedicated to doing good wherever possible, we donate 10% of our profits to fight fuel poverty through charities like the National Energy Action and Energy Action Scotland.

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How Ofgem affects you

By ensuring that new energy providers fulfil social and environmental responsibilities, react appropriately to complaints and comply with industry standards, Ofgem works on behalf of you as a consumer.

It is Ofgem that ensures large energy companies comply with obligations like providing low-income households with support for energy-saving upgrades, or that customers generating their own energy are paid a fee through feed-in tariffs.

Gas and electricity providers must also follow guidelines for dealing with their customers or approaching and selling to new customers, and companies risk being fined by Ofgem for non-compliance. For example, fines have been given for:

  • inadequate delays for offering power connections in rural areas,
  • mis-selling customers through cold calling,
  • overcharging customers with fees that don't apply to them, and
  • poor methods for handling complaints.

This could mean your gas or electricity supplier is fined, but it also means that they will improve their methods, benefitting you as the customer with better service in the long run.

How Ofgem influences the price of energy

Although Ofgem no longer controls the price of gas or electricity, which is influenced by supply and demand and set by the energy companies, it has the power to set price caps.

For instance, the default tariff price cap was introduced in 2019 to protect 11 million households on default tariffs, including standard variable tariffs. Similarly, the pre-payment meter price cap was introduced in 2017 to protect 4 million households who pre-pay for energy.

These price caps limit the amount that energy companies can charge for each unit of energy. Whilst they don't impose a limit on the amount shown on your bills, they do affect the amount you pay, and Ofgem reports that these caps protect around 15 million customers from being overcharged.

Impact of the Retail Market Review (RMR)

To examine how far the UK's energy market was protecting its customers, an investigation was launched called the Retail Market Review, which identified key areas that needed addressing.

The review found that competition wasn't working as well as it should. Suppliers were confusing customers with too many different rates and tariffs. Customers were unclear about which tariff they were on. Some tariffs were available to new customers only and long-standing customers were blocked from the cheapest deals.

In response, Ofgem introduced recommendations relating to simplified choices, improved clarity and fairer treatment. For example:

  • Key data about tariffs must be available, allowing customers to easily compare energy rates.
  • Energy rates should have one set tariff with clear, set pricing per unit of electricity. The only exception is for tariffs like Economy 7 that offer cheaper rates at periods of low usage.
  • Customers should be notified if there is a cheaper deal available.

To find the best energy deals available, use our comparison tool for free.