You've likely heard of Ofgem when it comes to news about the energy market or energy suppliers — find out what their exact role is in the energy market and how it impacts your household.
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Ofgem, or the Office of Gas and Electricity Markets, is the energy market regulator. That means Ofgem is responsible for keeping in check the energy companies — big and small — that keep our lights and heat on.
What is Ofgem and why do we need it?
Ofgem is the official regulatory body for the electricity and natural gas markets in Great Britain. In other words, it is the energy regulator.
It is an official government regulatory body, like Ofcom or the FCA and, as such, has certain powers and duties. They are governed by the Gas and Electricity Market Authority (GEMA), and are 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. Simply run an energy comparison or discover, how to switch your supplier for gas and electricity today.
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?
The principle objective of Ofgem is to protect consumers of gas and electricity.
According to Ofgem the regulator does this by:
- Promoting 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 twice a year and raised or lowered depending on a range of factors, including the situation in the wholesale energy market which can affect the price suppliers buy their energy at. This then has a knock-on effect as far as the prices they charge customers are concerned. As of October 2021, the price cap will be set at its highest ever level of £1,277.
To discover more about standard variable tariffs, read the Uswitch guide about what makes an energy plan standard.
If you are concerned about your energy bill being too high, then consider comparing gas and electricity tariffs on Uswitch. Ofgem states that customers could save up to £300 a year on their energy bills simply by switching to a cheaper fixed rate plan.
Switching to a fixed rate tariff can also give you peace of mind when suppliers announce energy price rises. Although price rises are never guaranteed, the trend in recent years has shown that prices are more likely to go up than come down.
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. Compare energy prices with Uswitch.
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 site, including Uswitch to follow key principles to ensure switching energy supplier 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 affect me?
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 to certain standards, or that energy companies are responding to complaints and fulfilling their social and environmental obligations. Discover 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. Discover 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.
Just a few examples of reasons 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.