The Office of Gas and Electricity Markets (Ofgem)
The Office of Gas and Electricity Markets (Ofgem) is the government regulator for Great Britain’s electricity and gas markets.
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.
- Smart meters: regulate Smart DCC’s licence to install smart meters across Britain by 2020.
|Administering government programmes||
- Improving efficiency: make government programmes more efficient through the E-Serve monitoring programme.
Source: 2013 Ofgem annual report.
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As the regulatory body between suppliers and consumers and the institution that oversees many aspects of energy wholesale market, as well as the transmission and distribution networks, Ofgem’s impact on consumers is significant.
- Increasing energy supplier transparency helps customers better understand what is on offer, from electricity and gas prices (through the tariff information label (TIL), 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 inquiries 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 many can save hundreds by switching suppliers, such scrutiny is not only useful: it is necessary.