Whether you’re a domestic energy customer, or dealing with business electricity and gas, you’ve likely heard of Ofgem.
Ofgem stands for the Office of Gas and Electricity Markets, and is the independent regulatory body for Great Britain. This means it covers consumers of domestic and non-domestic energy in England, Scotland and Wales. In Northern Ireland, the market is regulated by the Utility Regulator.
But you might not know what exactly Ofgem does. Or what rules it has created to help protect micro businesses. Below we take a look at how Ofgem works, and how it might impact your small business.
» MORE: A quick guide to business energy in the UK
What does Ofgem do?
Ofgem’s role isn’t to create energy policy in Great Britain – that job falls to the Department for Business, Energy and Industrial Strategy (BEIS) – but rather to regulate and enforce rules and changes within the framework set out by the government. It also highlights areas that may need addressing.
What are Ofgem’s responsibilities?
At the broadest level, Ofgem’s responsibilities are to:
- ensure that customers, whether they are domestic or non-domestic, are treated fairly
- help the country switch to a greener economy
- enable innovation and competition in the energy market
How does Ofgem achieve its aims?
Ofgem tries to meet its responsibilities through a combination of the following:
- monitoring and updating industry codes
- conducting strategic reviews
- making, implementing and enforcing regulatory proposals
- granting energy licences
- monitoring supplier compliance through consumer research and other methods
- investigating companies that have potentially breached or failed to comply with legislation
- issuing financial penalties if an energy company has breached legislation
How does Ofgem deal with business energy?
All of the actions described above apply just as much to business electricity and gas as they do to domestic energy.
One of the most notable ways Ofgem deals with business energy is through its rules surrounding micro businesses.
For the purposes of business energy, you are classed as a micro business if you satisfy just one of the following:
- you have nine employees or fewer, and an annual turnover or balance sheet that is no greater than €2 million
- your business uses up to 100,000 kilowatt hour (kWh) of electricity a year
- your business uses up to 293,000 kWh of gas a year
This means that the vast majority of the UK’s businesses will actually fall into the category of ‘micro business’.
Ofgem dictates that suppliers must take ‘all reasonable steps’ to identify your business as a micro business. You can also supply supporting evidence to prove you are a micro business if your supplier claims you do not qualify as such. This is important, as if you are classed as a micro business you have some added protection:
- You have a maximum notice period of 30 days when switching business energy suppliers.
- You can let your supplier know you intend to switch at the end of your contract at any time before the notice period.
- Your contract end date and notice period must be visible on all bills for fixed-term contracts.
- Any rollover contract cannot last more than 12 months.
- You cannot be ‘back-billed’ for energy you used more than 12 months ago if you haven’t been correctly billed for it previously.
In 2020, the regulatory body also carried out an investigation into the relationship between energy brokers and micro businesses. Ofgem found that a small number of unscrupulous brokerage firms were hiding fees in the contracts they had negotiated, causing some micro businesses to overpay for their energy. This has led to a rise in business energy claims being made against these brokers.
» MORE: Business tariffs, rates and prices explained
What is the Ofgem price cap?
One of the most discussed topics surrounding Ofgem is the energy price cap, officially called the Default Tariff Cap.
Originally, the Default Tariff Cap set out the maximum amount an energy supplier can charge domestic customers for a unit of energy on a default (i.e. standard variable) tariff or prepayment tariff. It is updated by Ofgem quarterly.
However, since 1 October 2022, it is the government’s Energy Price Guarantee, and not the Default Tariff Cap, that determines the maximum per unit cost supplier’s can charge domestic customers. Nevertheless, Ofgem still sets a Default Tariff Cap, and this is used by the government to inform the Energy Price Guarantee.
When deciding the price cap, Ofgem will take into consideration a number of factors, including, perhaps most importantly, the cost of wholesale energy. It is meant to prevent energy companies from making ‘excessive profits’, while at the same time passing on ‘reasonable costs’ to customers.
Although businesses, micro or otherwise, aren’t protected by an energy price cap in the same way, any movement in the cap itself is usually a symptom of wider changes already affecting the sector.
This means, for example, if wholesale energy costs are on the rise, businesses will likely start to see the impact of this – whether through their variable tariffs, or the fixed-rate tariffs they are offered when looking to switch – before Ofgem actually gets around to increasing the price cap.
Of course, if you run your business out of your home, and have a domestic energy contract, you may be directly affected by changes to the cap.
» MORE: UK energy crisis explained
How can you contact Ofgem?
There are a few ways you can contact Ofgem, depending on what you are looking to discuss.
If you want to make a general enquiry about Ofgem’s policies or functions, you can:
- email [email protected]
- call 020 7901 7295, from 9.30am to 4.30pm on Monday, Tuesday and Thursday, 9.30am to 12.30pm on Wednesday, and 9.30pm to 4pm on Friday
If you have questions about any of the environmental or social schemes monitored by Ofgem, a list of specific contact details can be found here.
Making a complaint about a network operator or comparison website
Ofgem cannot help with individual complaints about energy suppliers – that is the domain of Citizens Advice and the Energy Ombudsman.
However, it can help with complaints about network operators or energy comparison websites that are accredited by the Ofgem Confidence Code.
The contact details are the same as for general enquiries: you can email [email protected], or call 020 7901 7295.
Making a complaint about Ofgem
If you wish to complain about Ofgem itself, you can email [email protected]. Alternatively, you can write a letter to:
32 Albion Street
When dealing with a complaint, Ofgem states that it will:
- acknowledge your complaint within two working days
- investigate your complaint and write to you with a response within 20 working days
If you are not happy with this initial response, you can inform Ofgem by letter or email, and it will get back to you within another 20 working days.
If you are still not satisfied by Ofgem’s second response, you can complain to the Parliamentary and Health Service Ombudsman (PHSO) through your local MP.
Image source: Getty Images
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