Ofgem is the energy regulator in Great Britain. It stands for the Office of Gas and Electricity Markets. Before November 2000, the energy market was regulated by two separate bodies: the Office of Electricity Regulation (OFFER) and the Office of Gas Supply (Ofgas). These were merged under the Utilities Act 2000 to create a single regulator responsible for both gas and electricity.

What was the purpose of the merger?

The government wanted a single regulator to oversee the energy market. This would help ensure a secure energy supply, promote fair competition, and most importantly protect consumers.

Ofgem is a non-ministerial government department. That means it's headed by senior civil servants rather than a minister, which keeps it independent from day-to-day politics. It still operates within the laws and regulations passed by Parliament, and its powers are set out in legislation such as the Energy Act 2023.

What does Ofgem do?

Ofgem’s main role is to protect the interests of energy consumers in Great Britain.

Ofgem works alongside energy companies, the government, and NESO to help create a fair and secure energy system. This is important because they set the regulations for the entire electricity and gas market.

Any organisation wishing to operate in the energy market, whether in generation, transmission, distribution, or supply, must hold a license from Ofgem. This license outlines the rules companies must follow to ensure the market remains efficient, safe, and reliable. Ofgem writes these rules, monitors how companies operate, and takes action when they fail to comply. This also includes regulating how much companies are allowed to charge for energy.

Ofgem's wider priorities

Beyond licensing and price regulation, Ofgem's responsibilities now stretch across the whole energy transition. Its priorities include:

  • Making sure homes and businesses get affordable, secure, and reliable energy.
  • Making sure everyone receives a high-quality service from energy companies.
  • Supporting the shift to sustainable energy and the UK's net zero target.
  • Promoting competition and enabling innovation, so new products and services reach consumers.
  • Making sure network companies are financially resilient.
  • Investigating suspected breaches of competition law and taking enforcement action where needed.
  • Developing new regulatory frameworks for emerging areas such as heat networks, hydrogen, carbon capture and storage, and even the use of artificial intelligence in the energy sector.

Ofgem also considers how its decisions affect the wider UK economy, and it administers environmental and social schemes on behalf of the government.

Who Funds Ofgem?

Ofgem is funded in three main ways. Firstly, through the annual licensing fees paid by energy companies. They also receive government funding to run specific projects. Finally, the administration costs of environmental and social schemes are funded by the Department for Energy Security and Net Zero (DESNZ).

How does Ofgem help businesses?

Ofgem helps businesses by regulating the energy market to ensure it is fair and competitive. A competitive market means suppliers are encouraged to offer better prices, improved services and new innovations in order to win customers, which ultimately protects consumers’ interests.

How Ofgem helps make this happen

Ofgem keeps the playing field level. It sets the licence conditions every supplier must follow, monitors their behaviour, and steps in when companies break the rules. That can mean fines, redress payments to affected customers, or removing a supplier's licence altogether. It also runs the switching arrangements that make it straightforward to move between suppliers, which is what keeps the competitive pressure on.

What is the [energy price cap](/energy-hub/domestic-energy-vs-business-energy)?

The energy price cap limits the maximum amount that suppliers can charge for each unit of gas or electricity you use. Ofgem introduced the price cap back in 2019 because there were concerns that customers were paying a ‘loyalty penalty’. This meant that customers who did not regularly switch suppliers were often charged more, as some companies gradually increased prices for long-standing customers. The cap sets a limit on the unit rates suppliers can charge, protecting consumers from this loyalty penalty.

Ofgem reviews the price cap every three months.

Why are electricity rates so much higher than gas?

An increasing amount of our electricity comes from renewable sources like solar and wind. But the UK still relies on gas to meet demand when renewables aren't generating enough.

Electricity demand tends to be high when the sun sets and renewable generation drops off. That means gas-fired power stations are called on to meet demand, and because gas generation is more expensive, it drives up electricity prices. Find out more about live gas prices or read our guide on what affects gas prices in the UK.

If you're looking for a specific topic, visit Ofgem's website for more detailed information on rules and regulations.

How can Purely help?

Ofgem allows businesses to choose from many different energy suppliers. We can help you compare these options, explain the prices, and make sure you get the best deal for your business.

Have you got any other business-related questions? Take a look at our guides, or get in touch to discuss your business gas or electricity.