The Office of Gas and Electricity Markets (Ofgem) is the government regulator for Great Britain’s electricity and gas markets.
Status: non-ministerial government department.
Goal: to protect the interests of existing and future electricity and gas customers.
Size: 360 employees.
Budget: £50 million per year.
Chief Executive: Dermot Nolan.
Priorities and actions
For each strategic priority, Ofgem conducts a number of actions.
Value for money
- Retail Market Review: reforms to make the energy market simpler tariffs, clearer information, fairer treatment.
- State of the Market Assessment: assessing energy market competition to introduce efficient market reforms with the Competition and Markets Authority.
- Protecting people in vulnerable situations: working on helping people pay their bills and making switching easier for debt-owning prepayment customers.
- Consumer complaints: acting on published complaints performance reports by energy suppliers.
- Other actions to help consumers: reviewing the Guaranteed and Overall Standards of Service, working to limit backbilling, working to limit gas and electricity theft.
- Enforcement: energy company investigations and imposing compensations and penalties to protect consumers.
- Price control strategy: based on RIIO (revenue = incentives + innovation + outputs), it aims to increase energy company performance by rewarding good performance with less regulatory scrutiny.
- Improving performance on electricity distribution connections: encouraging competition between companies in the installation of connections to the energy distribution networks.
- System operation incentives: they target the electricity and gas system operators (National Grid Electricity Transmission and National Grid Gas) to encourage them to run economically and efficiently.
- REMIT: monitoring insider trading and market manipulation on wholesale energy markets.
- Transparency of profits: improving the transparency of energy company revenue, costs and profits to ensure bills reflect real trends.
- Liquidity reforms: help increase wholesale market liquidity to improve competition and reduce retail prices.
Security of supply
- Electricity Capacity Assessment: analysing the risks to Great Britain’s security of supply over the next five years to enable appropriate action.
- Mid-decade balancing services: ensure the National Grid has the tools to manage tighter capacity markets in 2015, when supply will be at its tightest.
- Electricity Market Reform: contributing to encourage low-carbon electricity, security of energy supply, while maintaining competitive prices for consumers.
- Electricity Balancing Significant Code Review: give electricity suppliers further incentives to balance generated and sold electricity.
- Gas Significant Code Review: work to reduce the risks of a gas supply emergency.
- Gas storage and third-party access: ensure gas storage and LNG facilities comply with regulations.
- Gas interconnector flows: improve security of supply by reviewing transmission charges to ensure interconnectors are used when foreign gas is cheaper.
- Offshore transmission: facilitate efficient transmission of electricity from offshore wind farms to homes and businesses.
- TransmiT: review of electricity transmission charges to promote the efficient development of the electricity transmission system.
- Integrated Transmission Planning and Regulation: review onshore, offshore and cross-border connections in view of Britain’s transmission network’s long-term development.
- Smart meters: regulate Smart DCC’s licence to install smart meters across Britain by 2020.
- Smarter markets: establish how to make energy markets more dynamic, efficient and engaging for consumers through supplier switching, half-hourly settlements, demand-side response, and consumer protection and empowerment.
- The Smart Grid Forum: establish how smart grids can help the UK’s transition to a low-carbon energy system.
- Network Innovation: encourage electricity distribution to test innovative low-carbon projects through competitions and awards.
Administering government programmes
- Improving efficiency: make government programmes more efficient through the E-Serve monitoring programme.
- Renewables Obligation: monitor how suppliers comply with their obligation to buy more electricity from renewable energy sources.
- Feed-in Tariff: manage the FiT scheme, where suppliers pay for electricity independently generated from renewable sources of energy.
- Other renewable electricity schemes: administer the Climate Change Levy renewable exemption, the Renewable Energy Guarantees of Origin, the Non-fossil Fuel Obligation and the Scottish Renewables Obligation.
- Renewable Heat Incentive: offer long-term incentive payments to reduce the use of fossil fuels for heating (domestic and non-domestic schemes).
- Energy Companies Obligation: monitor how energy suppliers help consumers meet energy-saving targets.
- Warm Home Discount: help people in fuel poverty heat their homes and offer rebates on some energy bills.
Source: 2013 Ofgem annual report.
As the regulatory body between suppliers and consumers and the institution that oversees many aspects of energy wholesale markets, and transmission and distribution networks, Ofgem’s impact on consumers is certain.
Increasing energy supplier transparency helps customers better understand what is on offer, from electricity and gas prices (through the tariff information label, for example) to complaints performance (through quarterly complaints performance reports).
Ofgem is also responsible for the Confidence Code, which sets standards for electricity and gas comparison websites to ensure customers understand what is offered, what they can switch to, and who the comparison company’s partners are.
The many efficiency and cost initiatives that Ofgem undertakes helps ensure that end-prices are kept as low as possible while maintaining good service, in the interest of the consumer. For example, monitoring company profits or assessing transmission network efficiency is done with consumer bills in mind.
Influential media coverage
Increasingly, Ofgem has appeared in the media as a critical watchdog of what energy suppliers say or do. It does not hesitate to recommend enquiries into energy suppliers’ profits or question statements saying overall costs are rising. For example, in June 2014, Ofgem referred the six largest energy suppliers to the Competition and Markets Authority among growing public suspicion that rising bills do not reflect increasing costs and that there is tacit coordination between the largest energy companies to keep electricity and gas prices high. When the average UK dual-fuel bill is over £1,000 and when most can save over £200 by switching suppliers, such scrutiny is not only useful: it is necessary.