Tom Melhuish 5 min read

What is Ofgem?

With the energy price cap currently dominating the news, you may have heard the name Ofgem banded around a lot. We’ve realised that many readers don’t know who Ofgem is and what they do, so in this article, we explore it in more detail.

What is Ofgem?

Ofgem is a non-ministerial department tasked with overseeing and regulating any company that operates in the gas and electricity networks industry.

As an industry regulator, it is a similar setup to the following:

Ofwat – Water
Ofsted – Education
Ofcom – Broadcasting, telecommunications, and postal industries

Ofgem controls pricing and regulations to protect the interests of future gas and electricity consumers, which is why they are the entity behind the energy price cap.

To protect consumers, Ofgem promotes:

The security of energy supply and sustainability
Value for money
Implementing regulation
Supervising markets and competition
Delivering government schemes

Ofgem helps the energy industry to make constant environmental improvements as well as helps to establish government initiatives to hit carbon and climate targets.

What does Ofgem stand for?

Ofgem stands for the “Office of Gas and Electricity Markets”.

What does Ofgem cover?

As an industry regulator, Ofgem covers:

Recording complaints regarding the energy market and infrastructure

Ofgem doesn’t accept complaints regarding individual business energy suppliers but does record the number of complaints made against each one.

Ofgem then publishes these data sets to the public, so consumers can check the league table to see which energy suppliers have the most complaints and help them decide who to switch to next.

Administering price caps

Ofgem administers the energy price cap. The price cap is a limit on how much energy suppliers can charge for electricity and gas under their standard variable tariffs. Notably, Ofgem doesn’t provide a business energy price cap.

These were initially implemented in 2019 so that suppliers wouldn’t earn excessive profits from customers that do not compare energy products and switch energy suppliers.

Providing support when energy suppliers fail

A record amount of energy suppliers went bust in 2018 and 2019, leaving thousands stranded.

When a business energy supplier or business gas supplier stops trading, Ofgem steps in and provides a safety net to protect consumers’ energy supplies and the existing credit balances of their old accounts.

The process is called SoLR, which stands for Supplier of Last Resort – this will then assign a new supplier within days and transfer across previous credit without any interruption of energy supplies.

Overseeing environmental and social schemes

Ofgem ensures energy suppliers conform and comply with schemes to make the energy market more environmentally friendly and sustainable.

They also focus on procedures to make the energy market more accessible and affordable for the most vulnerable consumers who may struggle to make ends meet.

An example is the Winter Fuel Payment scheme.

Determines what appears on energy bills

If you’ve ever lived abroad, you may have noticed that energy bills are broken down in different ways. In the UK, Ofgem standardises this breakdown and what additional information is included.

Energy suppliers must provide details on:

Tariff type
Personal projection – how much you’ll spend if you stay on the same tariff over the year
Your domestic/business energy consumption

Publishes guides and energy market information

To empower the consumer to make a clear, informed decision when switching business energy suppliers, Ofgem publishes detailed information about energy suppliers and informative energy guides.

What can Ofgem enforce?

The legal requirements Ofgem can enforce are as follows:

Enforcing licence conditions: Ofgem can impose financial penalties of up to 10% of a licensee’s turnover. This applies if they breach the relevant conditions and requirements under:
- The Gas Act 1986.
- The Electricity Act 1989.
Enforcing competition law: Ofgem can impose penalties for breaches of the following:
- The prohibitions on anti-competitive agreements and abusing positions of dominance in the Competition Act 1998.
- Articles 101 and 102 of the Treaty on the Functioning of the European Union.
Enforcing consumer protection law. Ofgem can apply to the courts if any supplier breaches the following acts:
- Enterprise Act 2002.
- Consumer Rights Act 2015.
- Business Protection from Misleading Marketing Regulations 2008.
Enforcing the Green Gas Levy. Ofgem can enforce notices on suppliers if they fail to comply with the Green Gas Support Scheme Regulations 2021.
Market investigation references. Ofgem can conduct market reviews of activities connected with the transmission, supply and generation of energy (gas and electricity).
REMIT and wholesale market integrity. Ofgem is responsible for preventing and reporting on wholesale energy market abuse.