A Guide to The Office of Gas and Electricity Markets
Ofgem: The energy market regulator
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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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:
- lower bills,
- reduce environmental damage,
- improve reliability and safety,
- improve quality of service,
- 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:
- Energy Company Obligation,
- Renewable Heat Incentive, and
- Warm Home Discount.
The Confidence Code
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.