Office of Gas and Electricity Markets
|Non-ministerial government department overview|
|Headquarters||9 Millbank, London, SW1P 3GE|
|Annual budget||£50.6 million (2009-2010)|
|Non-ministerial government department executive||
The Office of Gas and Electricity Markets (Ofgem), supporting the Gas and Electricity Markets Authority (GEMA), is the government regulator for the electricity and downstream natural gas markets in Great Britain. It was formed by the merger of the Office of Electricity Regulation (OFFER) and Office of Gas Supply (Ofgas).
Powers and duties
The Authority's powers and duties are largely provided for in statute (such as the Gas Act 1986, the Electricity Act 1989, the Utilities Act 2000, the Competition Act 1998, the Enterprise Act 2002 and the Energy Act 2004, the Energy Act 2008 and the Energy Act 2010) as well as arising from directly effective European Community legislation. Duties and functions concerning gas are set out in the Gas Act and those relating to electricity are set out in the Electricity Act.
Its primary duty is to protect the interests of consumers, where possible by promoting competition. The Authority‘s main objective is to protect existing and future consumers' interests in relation to gas conveyed through pipes and electricity conveyed by distribution or transmission systems. Consumers' interests are their interests taken as a whole, including their interests in the reduction of greenhouse gases and in the security of the supply of gas and electricity to them. Since 2010 the Authority has imposed nearly £100 million in fines and redress levies against energy suppliers, including a £12 million redress levy on E.ON in May 2014, and a £1 million redress levy on British Gas in July 2014.
Ofgem is divided into Ofgem (Smarter Grids & Governance, Markets, Sustainable Development and Group Finance Director) and Ofgem E-Serve containing Group Functions: Environmental Programmes, Operations/HR, Information Management and Technology, Finance and Risk Management, and Commercial: Offshore, Legal, Smart Metering Delivery, New Schemes Development.
Development of competition in the UK market
The liberalisation and privatisation of the energy markets in the United Kingdom began with the Margaret Thatcher Government in the 1980s (often called the Thatcher-Lawson agenda, due to the key role of Nigel Lawson in the Thatcher government cabinet). Aspects of the Ofgem model have been adopted by EU legislation.
Starting in the 1990s, the supply of electricity and gas to end consumers in the UK has been unbundled from the rest of the industry. At the time of privatisation, British Gas and one regional public electricity supplier (PES) held a monopoly on supplying all domestic gas and electricity consumers respectively in Great Britain. Between 1996 and 1999, domestic energy consumers gradually got the freedom to choose their supplier, and finally in May 1998, the domestic gas market was fully opened to competition, closely followed by the domestic electricity market in May 1999.
Before there was competition on domestic markets, Ofgem set price controls fixing maximum price that the monopoly suppliers could charge domestic customers. These price controls remained in place when markets started to get liberalised, and were then gradually removed between 2000 and 2002. Ofgem’s decision to remove price controls was based on the assessment that competition was developing well at that time and that the Competition Act 1998, being effective since March 2000, would deter companies from the abuse of market power, and provide Ofgem with sufficient power to tackle any abuse. Moreover, consumer surveys showed good awareness of the ability to switch, high and rising switching rates away from the former monopoly supplies, and substantial and continuing falls in their market shares.
In 2000, the Social Action Strategy review Group was established and the Competition Act came into force. In 2003 the Wholesale Gas Probe was published. Two years after the removal of the last price controls, in April 2004, Ofgem published a major review of the state of competition in the domestic energy supply markets, concluding that supply competition had delivered substantial benefits for all consumers and that the markets were competitive, though not yet mature. In 2005 there was the EU Energy Sector Enquiry, as well as the Supply Licence Review. The Energy Supply Ombudsman was then established in 2006 and in 2008 the Energy Supply Probe was published.
Against the background of unprecedented increases in world fuel prices leading to record increases in wholesale and retail gas and electricity prices so that a typical household's energy bills more than doubled since early 2004 Ofgem undertook the Energy Supply Probe. The numbers of consumers in debt to their energy suppliers, average debt levels and disconnection rates were all rising. These energy price rises came at a time when household budgets were under pressure from the rising cost of food, petrol, mortgages and other essentials. Vulnerable consumers and those in fuel poverty were particularly affected. The Energy Supply Probe published the findings on the operation of the UK retail energy markets and set out a package of measures to tackle the issues raised.
In June 2014 Ofgem announced a Competition and Markets Authority (CMA) investigation into the trading practices and competitiveness of the country's major energy companies: Centrica, SSE plc, RWE npower, E.ON, Scottish Power and EDF Energy. The investigation, which took two years, followed a referral by Ofgem to the competition regulator. "There is near-unanimous support for a referral and the CMA investigation offers an important opportunity to clear the air. This will help rebuild consumer trust and confidence in the energy market as well as provide the certainty investors have called for," Ofgem CEO Dermot Nolan in announcing the investigation. In August 2016 Ofgem said that it would implement the CMA's recommendation that suppliers should be required to provide the details of customers who have been on expensive tariffs for three years or more to rival suppliers. Ofgem also said that it would impose an interim price cap on customers using pre-payment meters.
- Consumer Focus (consumer watchdog)
- Energy in the United Kingdom
- Energy policy of the United Kingdom
- Energy switching services in the UK
- Ofgem Annual Report 2009-2010 (PDF), Office of Gas and Electricity Markets, 2010-07-15, retrieved 2010-12-18
- "The UK Statute Law Database: The Energy Act 2004". Statutelaw.gov.uk. Retrieved 2013-01-13.
- "The UK Statute Law Database: The Energy Act 2008". Statutelaw.gov.uk. 2011-05-27. Retrieved 2013-01-13.
- "The UK Statute Law Database: The Energy Act 2010". Statutelaw.gov.uk. Retrieved 2013-01-13.
- "The role of energywatch and Ofgem" (PDF). p. 2. Retrieved 2013-01-13.
- "Ofgem Electricity and Gas Supply Market Report September 2010" (PDF). pp. 19–21. Retrieved 2013-01-13.
- "E.On to reimburse 12mn pounds to customers for mis-selling power". The UK News. Retrieved 17 May 2014.
- "BG pays compensation for mis-sold contracts". Britain News.Net. Retrieved 5 July 2014.
- "Gas and Electricity Markets Authority" (webpage). Retrieved 2013-01-13.
- "Energy: What do we want to achieve? - European Commission". Ec.europa.eu. Retrieved 2013-01-13.
- "Energy Supply Probe - Initial Findings Report" (PDF). pp. 18–20. Retrieved 2013-01-13.
- "Energy Supply Probe - Initial Findings Report" (PDF). p. 20. Retrieved 2013-01-13.
- "Energy Supply Probe - Initial Findings Report" (PDF). pp. 20–21. Retrieved 2013-01-13.
- "Energy Supply Probe — Initial Findings Report" (PDF). pp. 22–27. Retrieved 2013-01-13.
- "UK market regulator to probe power utilities' operations". The UK News. Retrieved 27 June 2014.
- Mehreen Khan (3 August 2016). "Ofgem approves plans to reduce energy bills". Financial Times. Retrieved 3 August 2016.
- Official website
- The role of energywatch and Ofgem
- Sustainable Development Commission in-depth review of Ofgem
- OFGEM Sentinel