What is Ofgem? Everything you need to know
Ofgem is a name that pops up quite frequently when people talk about energy, especially in the news. We explain what Ofgem is, why it exists and how it helps the UK energy sector.
What is Ofgem?
Ofgem is a government department that’s in charge of regulating the energy market. They promote competition in the energy industry, which should result in better prices for domestic and commercial customers.
As well as looking after the interests of gas and electricity consumers by controlling prices, 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. Its name was formed when the Office of Electricity Regulation (OFFER) merged with the Office of Gas Supply (OFGAS). Now, Ofgem supports the current Gas and Electricity Markets Authority (GEMA).
Why was Ofgem formed?
The energy market in the United Kingdom was liberalised and privatised by Margaret Thatcher back in the 1980s, 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 becomes more and more important.
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 Martin Cave, who was appointed as the head of the group in 2018.
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.