Who are they?
Ofgem stands for ‘Office of Gas and Electricity Markets’. They are a non-ministerial government department (free of direct political oversight) and an independent national regulatory authority. Their main function is to regulate each component of the energy chain, especially those in monopolised segments such as distribution and transmission. They state that their primary objective is to ‘protect the interest of existing and future electricity and gas consumers’. In short, they make sure that customers aren’t ‘taken for a ride’ and left out of pocket.
How do they work?
On a regular basis they make decisions on price controls and enforcements, all with the interest of the customer in mind. They try to ensure that prices for transmission, distribution and supply remain fair and kept in accordance with the wholesale and generation costs for energy. They are governed by the ‘Gas and Electricity Markets Authority’ (GEMA). Although they are a government department, they have their own corporate structure and function separately from ministerial control. They are funded by recovering costs from their licensed companies; they pay an annual license fee.
Examples of their regulations
After the Retail Market Review in 2010, OFGEM made an effort to make the energy tariff much more transparent for the customer. Up until this point there was one unit rate for energy that would cover costs for transmission, distribution, company outgoings etc., however, OFGEM made it so such static costs needed to be expressed in a separate costing structure that would better display what the customers are paying for and also prevents energy providers from overpricing and setting ambiguous price tags.
This can be seen in more detail by clicking the image below:
Ofgem was formed by merging the ‘Office of Electricity Regulation’ (OFFER) and ‘Office of Gas Supply’ (Ofgas). Before competition existed within energy markets, OFGEM set price controls that fixed the maximum amounts monopoly suppliers could charge domestic customers. These price restrictions continued after 1990 (privatisation); however, were gradually removed between 2000 - 2002. This decision came around as OFGEM believed that the competition within the market was developing well at the time and the ‘Competition Act 1998’ would deter companies from taking advantage of the liberated market.
On the back of unprecedented world fuel price increases thereafter, the number of those in debt to their energy providers shot up, followed by high disconnection rates. This all came at a time when households were already struggling with rising prices for food, petrol, mortgages and other essentials. Since then, OFGEM have been working to ensure that customers are provided with energy on fair terms, making sure companies do not take advantage of their customers.