What is Ofgem? Its Role in UK Energy Described

Ofgem is part of the UK government and it regulates the energy market, helping to make it better for UK consumers. In this capacity, Ofgem makes recommendations, carries out investigations, and intervenes, if necessary, to ensure that consumers' interests are protected.


What is Ofgem?

Ofgem stands for the Office of Gas and Electricity Markets (it’s sometimes mispronounced Ofgen or spelt Offgem). They state that their primary objective is to ‘protect the interest of existing and future electricity and gas consumers’. Ofgem have 3 main ways of doing this:

  • Promoting competition in Energy markets.
  • Ensuring the reliable service.
  • Helping to make environmental improvements in the industry.

In recent years, Ofgem has put in place a default tariff price cap which applies to standard variable tariffs available to domestic customers in the UK.

Ofgem Complaints Options

Ofgem help you by regulating the industry, making sure companies treat you fairly. However, they don’t fight your case for you. If you have a complaint about your gas and electricity provider, the Energy Ombudsman is the organisation you want.

The Story of Ofgem

To understand why we need Ofgem we need to go back to the 1980’s before it was set up. Prices were controlled by the government but there was little choice when it came to domestic energy.

Then in the 1980s the energy market privatisation was begun by the Thatcher government (full deregulation and price restrictions would come later). This meant the energy companies were in private hands but operating as monopolies. So as part of the privatisation process the government set up a regulatory body to make sure consumers got a good deal. Ofgem was created by the merger of the Office of Electricity regulation (OFFER) and the Office of Gas supply (OFGAS) creating one organisation that ensures that all interests of the consumer are being looked after.

In its early days, Ofgem set price controls that fixed the maximum amount monopoly suppliers could charge domestic customers. These price restrictions continued into the 90s. Because of increased choice for consumers, Ofgem took the decision to start to relax price regulation in 2000. After initial pilot schemes worked well, it removed price regulation entirely by 2002. Limited price regulation returned more recently, in the shape of price caps for standard variable and prepayment tariffs.

Where does Ofgem’s authority come from?

Ofgem is part of the UK Government and a legislation over the years has impacted its purpose and its power to act over energy firms. You can see a list of them in the table below.

Act of Parliament Powers of Ofgem
The Gas Act 1986 The privatisation of British Gas and it’s flotation on the stock market on 8th December 1986.
The Electricity Act 1989 The privatisation of the electricity supply in Great Britain.
The Gas Act 1995 Owners of certain gas processing facilities had to make the available to other persons.
The Competition Act 1998 To ensure fair trade and make provision for competition and tackle abuse of dominant positions in markets.
The Utilities Act 2000 Requirement for Electricity companies to have separate licenses for each one of their businesses e.g. one for supply and one for provision.
The Enterprise Act 2002 Stopped anti competitive behaviour and gave Ofgem more powers to take suppliers to court.
The Energy Acts of 2004, 2008 and 2010 Changes to renewable energy generation and gas and electricity supply.
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