With the cost of living crisis continuing to affect households around the UK and energy prices increasing, it’s likely that you’ve heard a lot about the energy price cap from Ofgem, which sets the bar for the maximum amount that households can be charged for each unit of gas and electricity.
It was recently announced that the energy price cap will jump by around 80% from the start of October, meaning the cap will be pushed to £3,549 per year for the average household - the highest it has ever been.
But what exactly is Ofgem, the regulator setting the cap, and who runs it?
This is everything you need to know.
What is Ofgem?
Ofgem, which stands for the Office of Gas and Electricity Markets, is the UK’s independent energy regulator.
What this means is that Ofgem regulates and oversees the companies that operate in the UK’s gas and electricity networks, with the primary duty of protecting the interests of consumers.
Ofgem states that its aim is to “protect energy consumers, especially vulnerable people, by ensuring they are treated fairly and benefit from a cleaner, greener environment”.
It is responsible for:
- Working with the Government, industry and consumer groups in order to deliver a net-zero economy, at the lowest cost to consumers
- Stamping out sharp and bad practice, ensuring fair treatment for all consumers, especially the vulnerable
- Enabling competition and innovation, which drives down prices and results in new products and services for consumers
Does the Government control Ofgem?
Ofgem is a non-ministerial department, which the Government defines as a “government department in its own right, but does not have its own minister”.
The Government adds: “However, [non-ministerial departments are] accountable to Parliament through its sponsoring ministers.
“A non-ministerial department is staffed by civil servants and usually has its own estimate and accounts.”
Ofgem is governed by the Gas and Electricity Markets Authority, which is known as GEMA, the Authority or the Ofgem Board.
GEMA is made up of non-executive and executive members, and a non-executive chair, with members appointed by the Secretary of State at the Department for Business, Energy and Industrial Strategy.
Ogem’s governing body will determine things like strategies, setting policy priorities and make decisions on a variety of regulatory matters, which includes price controls and enforcement.
GEMA’s powers are provided for under the Gas Act 1986, Electricity Act 1989, Utilities Act 2000, Competition Act 1998, Enterprise Act 2002 and measures set out in a number of Energy Acts.
How is Ofgem funded?
Ofgem explains that it is funded by recovering its costs from the licensed companies that it regulates.
“Licensees must pay an annual licence fee, which is set to cover out costs,” it says on the Ofgem website.
It also adds: “We are wholly independent of the companies we regulate.”
What was the recent energy cap announcement?
Ofgem has confirmed an 80.06% rise in the energy price cap, sending the average household’s yearly bill from £1,971 to £3,549 from October.
The cap will come into effect for around 24 million households in England, Scotland and Wales on default energy tariffs on October 1, and will remain in place until December 31, when it will be adjusted again.
Ofgem has warned that some suppliers could start increasing direct debits before October 1 in order to spread costs.
The 4.5 million pre-payment meter customers, who are often the most vulnerable and already in fuel poverty, will see an even more punishing increase, with their average annual bill set to go up to £3,608.
The regulator said the increase reflected the continued rise in global wholesale gas prices, which began to surge as the world unlocked from the Covid pandemic, and had been driven still higher to record levels by Russia slowly switching off gas supplies to Europe.
Ofgem CEO, Jonathan Brearley said: “We know the massive impact this price cap increase will have on households across Britain and the difficult decisions consumers will now have to make. I talk to customers regularly and I know that today’s news will be very worrying for many.
“The price of energy has reached record levels driven by an aggressive economic act by the Russian state.
“They have slowly and deliberately turned off the gas supplies to Europe causing harm to our households, businesses and wider economy. Ofgem has no choice but to reflect these cost increases in the price cap.
“The Government support package is delivering help right now, but it’s clear the new Prime Minister will need to act further to tackle the impact of the price rises that are coming in October and next year.
“We are working with ministers, consumer groups and industry on a set of options for the incoming Prime Minister that will require urgent action.
The response will need to match the scale of the crisis we have before us. With the right support in place and with regulator, Government, industry and consumers working together, we can find a way through this.”