The workings of Ofgem and Ofwat
You’ll have heard about Ofgem and Ofwat, but you would be forgiven for not knowing exactly what those letters stand for, or exactly what they do. Ofgem stands for Office of Gas and Electricity Markets, while Ofwat is the Office of Water Regulation. Both are regulatory bodies to ensure the security of supply and development of markets for all utilities. In short, they work to protect consumers and make sure the system runs fairly.
What is Ofgem?
Ofgem states that its principal objective “is to protect the interests of existing and future electricity and gas consumers”. Primarily, it is concerned with value for money, ensuring a constant sustainable supply for consumers, and delivering government schemes. Although it operates as an independent National Regulatory Authority, it is still a government department and therefore works to put in place schemes and regulations created by Parliament.
Operating transparently is another of Ofgem’s goals, and they often hold seminars, briefings, meetings and workshops for stakeholders and the press. This is also a good opportunity for them to put forward plans and upcoming strategies to gauge the response from consumers. Ofgem is very open about its funding which is received from licensing the companies it regulates. Suppliers pay an annual licence fee which Ofgem put towards covering its costs. Since 2010, Ofgem has fined energy suppliers almost £100 million in a bid to protect consumers and encourage transparency between all parties.
Ofwat regulates the water sector across England and Wales with the primary vision of “building trust and confidence in water”. Like Ofgem, it works to improve communication and understanding between suppliers and consumers, part of which includes asking water providers to prove their efficiency and high standard of service. Ofwat openly admits to challenging suppliers where appropriate and ensuring that society’s expectations of the water sector are met.
Ofwat also oversees new capital investment schemes, like the construction of new wastewater treatment works, as well as setting limits on the amounts suppliers can charge their customers for water and sewerage services. This is especially important as the domestic water market hasn’t yet been deregulated, leaving consumers with no choice when it comes to their water supplier, unable to shop around for the best tariffs. Having Ofwat oversee the operation of the water sector provides the public with peace of mind and assurance of value for money.
In early September, Ofgem announced a domestic energy price cap, details of which can be found here. It introduced the cap to make sure that consumers pay fair and reasonable costs, particularly in a time when the price of energy is causing utility bills to rocket up. Similarly, Ofwat holds a price review every five years to set up-to-date limits on what water suppliers can charge their customers. The limits are set in accordance with the current rate of inflation and the next review is due in 2019. Monitoring the prices in this way and regulating the market protects consumers, and having regular changes such as Ofgem’s recent price cap announcement ensures that the public continue to trust Ofgem and Ofwat.