Ofgem is an Independent National Regulatory Authority that is part of the UK government but it operates independently from the government and the energy industry to regulate the UK energy market.
OFGEM stands for Office of Gas and Electricity Markets. They are set up to protect the interests of energy customers in the UK, this includes:
- Promoting value for money through the setting of revenue controls as well as the supervision of wholesale and retail markets.
- Supporting the security of the energy supply and its sustainability which includes ensuring that there is enough energy available at all times, supporting the National Grid in managing supply, as well as promoting energy efficiency and demand management measures.
- Promoting sustainability and the transition to a low-carbon economy which includes promoting energy-saving measures and demand-side response as well as supporting all environmental improvements.
- Supervision and regulation of the energy market and ensuring its competitiveness through reporting requirements, the setting of regulations, investigating any possible breaches that may occur, and monitoring of licensing conditions.
- Regulation and delivery of any energy based government schemes which include the consumer and environmental programmes as well as the regulatory system for offshore electricity transmission networks.
Ofgem aims to create a more competitive, fairer energy market in the UK. As part of this, they are trying to make it easier for energy users to switch suppliers and get a better energy deal.
Who governs and funds Ofgem?
Ofgem is governed by the Gas and Electricity Markets Authority (GEMA) who decides their strategy, policies, priorities, and regulatory decisions such as enforcement and price control.
Ofgem is funded by the companies that it regulates through an annual license fee which is set a level to cover their costs. The license is set up in such a way that they remain independent from energy companies.
Who Does Ofgem Licence?
As a result of the Gas Act 1986 and the Electricity Act 1989 some gas and electricity activities must be carried out under a licence. These licences impose conditions under which the licensee must operate and conform with to maintain their licence.
The industries licensed by Ofgem include:
- Distribution of electricity and gas
- Generation of electricity
- Electricity and gas interconnectors
- Suppliers of electricity and gas
- Electricity transmission
- Gas shipper
- Gas transporter
- Smart meter communications
Ofgem does not have a direct role in dealing with complaints and will not get involved with individual complaints. Citizens Advice and Energy Ombudsman services have been established and funded to handle complaints on behalf of Ofgem and the government.
However, Ofgem does set standards of customer service levels in regards to complaints and guidance on handling complaints that all energy companies must adhere to which includes:
- Publishing quarterly domestic complaints data on their websites
- Publishing their top five complaint reasons and the actions they are taking to reduce this
- Clearer complaint handling procedures as a result of the Complaints Handling Standards Regulation 2008
- Set reporting templates for complaints reporting to Ofgem
Ofgem alongside the Citizens Advice and the Energy Ombudsman publish industry complaint statistics by supplier, the severity of the complaint, the length of time to resolve the complaints, and how many complaints are upheld by the Energy Ombudsman.
Ofgem does not audit or check the complaints data but will intervene and conduct an investigation if the energy company is believed to have breached the Complaints Handling Standards Regulation 2008.
Who Does Ofgem Support and What is Available to Them?
Ofgem exists to support energy customers and the government as well as regulating the energy market in the UK. Energy customers are anyone who is an end user of gas and electricity in the UK so that includes households and business from small to large-scale organisations.
There is a wide range of advice and support available in the form of guides including:
- Understanding bills and meters
- Switching suppliers
- Making complaints
- Saving money on bills
- Difficulties paying your bills
- Moving home and new connections
- Explaining key terms
- Energy contracts for business
- Information on government schemes such as Warm Homes Discount and Feed-in Tariff
There is also a wealth of information in their reports about suppliers and consumer research that they have conducted, this includes:
- Accredited price comparison sites
- Reports on supplier customer service performance
- Reports on supplier customer complaints performance
- Ofgem data portal
- Energy market indicators
- Household customer research
- Business customer research
- Engaging on customer issues
For more see: Who Supplies My Gas and Electricity?
Ofgem’s role is to regulate where necessary to protect customers and not to add unnecessary constraints but to enforce the rules set out in the regulations and the licences. They will also establish new regulations that promote customer protection.
As such Ofgem will investigate the behaviour of any energy company who might have breached their licence conditions, customer protection, or competition legislation. If a company is found guilty of this, Ofgem will undertake enforcement action.
Ofgem has the power to impose enforcements on those companies it licenses which can include:
- Issuing orders or directions to end the breach and to redress any harm caused
- Imposing financial penalties
- Creating commitments or actions about future conduct
- Apply to the court to stop breaches
- Disclose the investigation findings publically
The breaches that Ofgem may investigate are:
- Capacity market rules
- Consumer protection from unfair trading
- Customer service
- Debt or disconnection
- Emergency standards
- Failure to meet obligations
- Marketing and telesales activities
- Network connections
- Standards of conduct
- Tariff or payment rules
- Vulnerable customers
There is a data of all investigations and their outcomes available on Ofgem’s website.
Transparency and Engagement
Ofgem endeavours to be transparent in its operations and practices so they provide open and thorough consultations explaining the reasoning behind their plans and decisions. They also engage stakeholders through meetings and workshops to aid their decision making.
Ofgem also holds briefings for a variety of audiences including the press to aid the dissemination of their work. All minutes of their Authority meetings are also published publically.
One of Ofgem’s key roles is to protect vulnerable customers from paying too much. In February 2018, Ofgem extended its prepayment safeguard tariff to cover nearly one million additional vulnerable households, which now totals over five million households covered by this safeguard.
This safeguard tariff prevents suppliers from over-charging customers who can’t access good value deals due to their circumstances or meter type. Ofgem is also currently looking at extending this temporary price protection further to all households that are on poor value tariffs, which could see them monitoring the prices of over ten million UK households.
Ofgem is also pursuing reforms to make switching supplier easier so that everyone can access a better energy deal. This will help make the UK energy market more competitive and help keep energy prices down as well as hopefully improve the level of service that customers receive.
The announcements in February 2018, detailed a switching programme which will enable customers to switch supplier by the end of the next working day. It will also impose penalties for those suppliers that delay a switch unnecessarily.
To assist with protecting vulnerable customers Ofgem has established Social Obligations Reporting which requires all energy suppliers to report on their social obligation performance. This reporting includes:
- Levels of debt and repayment of debts
- Methods of payment
- Number of disconnections
- Number of prepayment meters
- Amount of non-financial support given to vulnerable customers
These reports are used to check that energy suppliers are complying with their rules, enable them to challenge performance and to direct policy. The data is also published in an annual report to ensure transparency of the progress being made and the performance of each energy supplier.
Delivering Government Programmes
Ofgem delivers many of the government’s schemes that impact on the consumer and environment. Their role in these schemes ranges from consultations and the practicalities of implementing a government scheme to the day-to-day management and administration of the schemes including ensuring compliance with the rules of the programme. Many of these programmes are designed to help the government meet the UK’s environmental and sustainability targets.
Some of the current programmes include:
- The Energy Company Obligation (ECO) which is an energy efficiency scheme targeting vulnerable customers and most energy inefficient homes in the UK to reduce their energy consumption and costs. This scheme aims to deliver on carbon reduction targets and reduce fuel poverty. Ofgem also managed previous energy efficiency schemes including Carbon Emissions Reduction Target (CERT) and Community Energy Saving Programme (CESP) which saw millions of UK homes benefitting from energy efficiency measures.
- The Warm Home Discount is a scheme aimed at tackling fuel poverty and supports people who met certain criteria based on age and income. This scheme is delivered by the energy suppliers who have to apply the discount to the person’s energy bills. Larger energy suppliers are obligated to participate in the scheme and small providers can voluntarily participate if they want to. Ofgem’s role is to oversee and administer the scheme ensuring that all qualifying suppliers participate and that eligible customers are aware of the scheme.
- The Renewable Obligation is a mechanism for supporting large-scale renewable electricity projects in the UK. This scheme places an obligation on all UK electricity suppliers to source a proportion of their electricity from renewable sources and each supplier has to evidence this through the collection of Renewable Obligation Certificates (ROCs). All renewable energy generators are accredited and then they are able to issue ROCs with the energy they sell to the energy suppliers for them to prove the origin of their electricity supply. Ofgem’s role in the Renewable Obligation is to administer the scheme and to assess and accredit the renewable energy generators.
- The Feed-in Tariff (FIT) scheme is a programme designed to increase the take-up of small-scale renewable and low-carbon electricity generation technologies through the financial support provided in the form of a payment for the electricity generated. The owner of the system is paid a fee for every kWh of electricity produced and a fee for exporting the electricity to the National Grid. The energy companies make the payments to the owner of the system and Ofgem run the schemes administration, reporting, and processing of some applications.
- The Renewable Heat Initiative, like the Feed-in Tariff, is a scheme aimed at incentivising the adoption of renewable heat technologies to produce small-scale heating and hot water. Qualifying system owners can benefit from quarterly payments for seven years for the amount energy they produce. Ofgem administers this scheme, the rules, and application process.
- Regulating the offshore transmission network for connecting the offshore wind farms to the National Grid which includes doing competitive tendering and overseeing the delivery of the operator.