All You Need to Know About Ofgem
What is or who are Ofgem? If you take an interest in the energy interest or even just the news, then Ofgem is a name that will pop up pretty frequently; especially with the extra attention that the energy industry has been gaining of late. This Love Energy Guide looks to explain just why Ofgem exists and how the help the energy sector…
Ultimately, the job of Ofgem is to promote competition in the energy industry, which should result in better prices for domestic and commercial customers. The regulator protects the interests of current and future customers when it comes to gas conveyed through pipes and electricity supplied via the UK’s transmission systems. As well as looking after the interests of consumers through price, Ofgem also monitors issues such as renewable energy, greenhouse gas and energy independence.
What Does Ofgem Stand For?
Ofgem stands for the Office of Gas and Electricity Markets and they support the Gas and Electricity Markets Authority (GEMA). The regulator was formed when the Office of Electricity Regulation (OFFER) merged with the Office of Gas Supply (OFGAS).
What Is Ofgem’s Job?
The majority of the duties expected of Ofgem are provided for in statute via a number of acts. These are:
- The Gas Act 1986
- The Electricity Act 1989
- The Utilities Act 2000
- The Competition Act 1998
- The Enterprise Act 2002
- The Energy Acts of 2004, 2008 and 2010
Some of Ofgem’s duties also arise from legislation passed by the European Community.
Over the last four years, Ofgem has issued close to £100 million in fines to various energy companies that have not toed the line. Perhaps the most significant of these was the recent £12 million fine imposed on E.On for mis-selling products to home and business energy customers.
How Is Ofgem Structured?
As is the way with many official bodies, the Gas and Electricity Markets Authority has a Chairman as well as executive and non-executive members. The current chairman of Ofgem is John Mogg, who was appointed for a second term as the head of the group in 2008. Lord Mogg, who became a life peer in the same year, has considerable qualifications for the role as he is also the Chairman of the European Regultors Group for Electricity and Gas and the President of the Council of European Energy Regulators.
Ofgem also has a Chief Executive, who will often comment on industry developments such as fines and inquiries. Alistair Buchanan has held this role for eleven years and is also a key member of the Business Energy Forum and the UK Energy Research Partnership, he has also previously worked for Scottish Water as a non-executive director.
Why Was Ofgem Formed?
The energy market in the United Kingdom was liberalised and privatised by Margaret Thatcher back in the 1980’s, which called for the various energy companies to be monitored by a regulator. This is when the first iterations of Ofgem came about.
Until the mid-nineties, British Gas and one regional Public Electricity Supplier had a stranglehold on the market and virtually monopolised it. From 1996 onwards, home and business energy customers gradually got more and more freedom to choose where they got their gas and electricity from. Then, in May 1998, the domestic gas sector was opened up fully followed by the electricity market one year later. This meant that the role of a regulator become more and more paramount.
Removal of Price Controls by Ofgem…
When there was little or no competition in the domestic energy market, Ofgem was able to control prices with a certain amount of ease. As the industry became more and more liberalised, these price controls remained in place but finally started to disappear between 2000 and 2002.
The regulator made the decision to remove these price controls as they believed that healthy competition between the emergent energy suppliers was ample to keep these prices at a suitable level. This may well be a decision that Ofgem is rueing due to the continued distrust in the Big Six energy suppliers and also the extortionate prices they are now charging. It was thought that the Competition Act of 1998 would stop companies for charging unfair prices and abusing their power as dominant forces in the industry.
The Energy Supply Probe...
Two years after the last of the aforementioned price controls were removed, Ofgem conducted a review into the state of competition in the home energy market. In April 2004, they concurred that supply competition had delivered significant benefits to the consumer. The Energy Ombudsman was set up a few years later in 2006 and then in 2008, came the Energy Supply Probe.
This probe tool place due to record increases in fuel prices across the globe, which had led to wholesale and retail gas and electricity prices soaring. In fact, home energy bills had doubled over the previous four years and there was growing anger and distrust emerging from consumers. Ofgem was concerned that more and more energy customers were in debt with their suppliers and disconnection rates were also going through the roof. Due to the fact that the cost of living was rising in the UK in general, the regulator was keen to establish the cause of these problems and also highlight some potential solutions. The Energy Probe did just that.
That, in a nutshell, is all you need to know about Ofgem and what role they play in an increasingly tumultuous energy market. You will notice updates regarding these guys in the Love Energy Savings News Centre, as they continue to make inquiries into fair play and also fine energy companies that continue to break rules and regulations.
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You can learn more about Ofgem by visiting their site at https://www.ofgem.gov.uk.