Ofgem Review

Ofgem was established almost a quarter of a century ago as the independent regulator for gas and electricity markets in Great Britain. At the time, a system of independent regulation was established to drive the move towards competition in gas and electricity supply and replicate the benefits of competition in the monopoly gas and electricity networks. Since then, the remit of the regulator has evolved and expanded over time to encompass broader aims, such as supporting government to meet its net zero targets and in delivering social and environmental schemes. Competition has driven changes in the retail sector – two new entrant suppliers are now among the very largest companies in terms of market share, and there are well-established and effective price control regimes for the monopoly networks.

In recent years the energy sector has also faced huge challenges. We have seen record prices and volatility driven by the Russian invasion of Ukraine, energy companies collapsing and mistakes over the forced installation of pre-payment meters, all during a cost-of-living crisis. Polling shows overall satisfaction with energy suppliers fell below the peak recorded before Russia’s invasion of Ukraine, although this is starting to recover.

As the Prime Minister set out at the International Investment Summit, the challenge is now for the UK’s regulatory regimes to ensure they are fit for the modern age, creating the right conditions for growth, investment, and innovation – all while protecting consumers and, in the case of Ofgem, helping to deliver the Government’s mission to make Britain a clean energy superpower. Competition has driven changes in the retail energy sector – two new entrant suppliers are now among the very largest companies in terms of market share – and there are well-established and effective price control regimes for the monopoly networks which are attracting investment this decade and beyond. But it is clear that reforms are needed.

Government wants to see an energy market with healthy sustainable competition, where effective regulation supports economic growth and delivers better outcomes for consumers. Restoring the reputation of the energy market is a critical part of this, because without consumer trust companies cannot grow. People rightfully expecting cleaner, cheaper, more secure energy to be delivered by trustworthy and reliable companies.

To address these challenges the government will undertake a review of Ofgem. The Review will ensure that Ofgem is set up to be an effective regulator as the energy market transitions to net zero. It will ensure that Ofgem has the remit and capabilities to help drive the innovation and investment needed for the energy transition, balanced with a consumer protection regime that gives households and businesses the confidence to switch to the technologies and services that are key to delivering net zero.

The review will focus on Ofgem’s mandate and duties, its remit and its role in supporting economic growth, the powers it has to protect consumers and drive standards, and how redress is made when standards are not met. This Call for Evidence is a first step of the review.

Alongside the review, the Government will continue to work with Ofgem on immediate steps to improve the experience of consumers, such as complaint handling, and on steps to ensure that the costs faced by consumers are fair and equitable, including on standing charges.