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Ofgem’s regulation of business energy prices, suppliers and contracts

Unlike domestic energy bills, business energy tariffs are uncapped. However, Ofgem still plays a key role in regulating how energy is marketed, sold, and contracted to businesses.

This guide explains how Ofgem regulations affect business energy prices, suppliers, and contracts. Here’s what we cover:

What is Ofgem?
How Ofgem controls business energy prices
Ofgem regulation of business energy contracts
Ofgem regulation of business energy suppliers

What is Ofgem?

Ofgem is Britain’s independent energy regulator. It oversees companies that generate, supply, and transport electricity and gas, helping to make sure the energy market works fairly for household and business customers.

The name “Ofgem” stands for the Office of Gas and Electricity Markets.

It was set up after the energy market was opened to private companies to protect consumers and maintain standards. Its main role is to ensure energy is supplied securely, fairly, and at good value for money.

Ofgem does this by:

Regulating monopoly network operators through price controls and performance targets
Encouraging competition between energy suppliers and generators
Overseeing environmental programmes aimed at decarbonising the national grid

How Ofgem controls business energy prices

Ofgem’s approach to controlling energy prices for business customers is to foster a competitive, transparent, and fair market.

Where market competition is effective, Ofgem largely adopts a supervisory role, allowing the market to set consumer prices. For elements of energy bills where there is little or no competition, such as the charges for using energy infrastructure, Ofgem directly regulates prices to protect consumers.

Here’s a summary of how, and to what extent, Ofgem regulates the four key components of commercial gas rates and business electricity prices.

Unregulated wholesale markets

Business energy suppliers purchase electricity and gas on behalf of their customers on the wholesale electricity market and wholesale gas market.

The market prices for electricity and gas are determined through a competitive market in which generators, importers, and battery storage facilities compete to offer the lowest prices to licensed energy suppliers.

Ofgem does not set or cap wholesale prices, as these are determined by market competition and are heavily influenced by global supply-and-demand conditions.

Regulated network charges

A significant proportion of commercial electricity and business gas bills comes from regulated network charges. These are the costs incurred by energy suppliers for transporting electricity and gas through national and local networks.

Ofgem applies direct price controls on the use of energy networks, which suppliers must pay to deliver electricity and gas to businesses.

These regulated charges include:

TNUoS charges – The cost of using the high-voltage national grid.
DUoS charges – The cost of using regional low-voltage electricity networks maintained by Distribution Network Operators.
BSUoS charges – The pass-through of costs incurred by NESO to maintain the balance of supply and demand on the grid.
NTS charges – The cost of using the national high-capacity gas transmission network.
LDZ charges – The cost of using regional gas distribution networks.

All of these charges are classed by Ofgem as monopoly network costs, because energy suppliers have no choice but to use these networks to deliver gas and electricity to business premises.

For each charge, Ofgem sets limits on how much network companies can earn. These limits are based on expected demand, running costs, planned investment, and a regulated return on capital.

Unregulated supplier operating margins

Commercial electricity and business gas suppliers incur a range of costs to deliver an energy supply service to customers, including:

Account management and customer service costs
Costs associated with preparing and issuing energy bills
Bad debt costs when customers do not pay their bills
Meter operator and meter reading costs
BSC charges paid to the market settlement operator Elexon

Licensed energy suppliers are private companies that typically add a profit margin on top of these costs in order to generate an overall profit.

As the non-domestic energy supply market is competitive, and customers can regularly switch business energy suppliers to find better deals, Ofgem does not cap or directly regulate the tariff charges set by energy suppliers.

Taxes and environmental levies

Commercial gas and business electricity bills include a range of government-imposed taxes and policy costs designed to raise revenue or fund decarbonisation.

These include:

These levies are determined directly by government policy. Ofgem plays a supervisory role by administering these schemes and ensuring that energy suppliers comply with the requirements when collecting the levies on behalf of customers.

No business energy price cap

In the domestic energy market, Ofgem uses a price cap mechanism to place a ceiling on the unit rates and standing charges that suppliers can offer customers on standard variable or other out-of-contract tariffs.

The price cap is calculated quarterly and reflects the main cost components of supplying energy, plus an allowed supplier margin, to determine a maximum unit price per kWh and a daily standing charge.

There is no equivalent business energy price cap, meaning that out-of-contract business energy tariffs can be very expensive.

If your company is paying out-of-contract rates, you may be able to make significant savings by switching to a fixed contract. Find out how much you could save with our business electricity comparison and business gas comparison services.

Ofgem regulation of business energy contracts

Business energy contracts are legally binding agreements between licensed energy suppliers and non-domestic customers for the supply of electricity or gas to business premises.

Ofgem provides the following regulations and consumer protections for these agreements:

Clear, fair and not misleading contracts

One of the licence conditions for business energy suppliers is a general obligation to ensure fairness and transparency in energy contracts.

Business energy contracts, whether verbal or written, must explicitly set out the following core terms:

Contract start and end dates
Supply points (MPAN/MPRN)
Unit rates and standing charges (or a clear method for calculating them)
Contract duration and any renewal mechanisms
Termination rights, notice periods, and termination fees
Payment terms and the consequences of non-payment

Each of these terms must be presented accurately and be understandable to a reasonable business customer.

Find out more about these key terms in our guide to business energy contracts.

Additional micro business protections

Ofgem enforces the following additional requirements for electricity and gas supply contracts with microbusinesses:

Restrictions on termination notice periods – Suppliers may require a maximum of 30 days’ notice before the contract end date.
Backbilling limits – Suppliers are limited to correcting billing errors for a maximum period of 12 months, including where errors relate to manual meter readings.

Find out more in our full guide to micro business electricity.

Deemed energy contract regulations

Deemed business energy contracts apply when the occupier of a non-domestic property uses electricity or gas without having agreed a tariff with the energy supplier for that property.

Where supply is provided under a deemed contract, suppliers must:

Publish their deemed rates and full terms and conditions on their website.
Proactively contact the customer to inform them of the terms and conditions of the deemed contract.

Find out more in our guide to deemed business energy contracts.

Regulations for business energy brokers

Business energy brokers are intermediaries that help arrange new business energy contracts.

Ofgem does not regulate brokers directly. Instead, it restricts the ways in which licensed energy suppliers can work with brokers, including the following requirements:

Letter of authority – Suppliers may only work with business energy brokers who hold a signed and valid letter of authority (LOA) from their customer.
Commission disclosures – Business energy contracts must clearly disclose any commission paid by the supplier to the broker within the tariff rates.
Broker registration – Suppliers may only work with brokers registered with an approved Alternative Dispute Resolution (ADR) scheme, such as the Energy Ombudsman, which helps resolve disputes between brokers, suppliers, and consumers.

Find out more in our full guide to business energy brokers.

Ofgem regulation of business energy suppliers

Ofgem regulates and licenses commercial electricity and business gas suppliers in Great Britain, and publishes an up-to-date list of licensed suppliers on its website.

Licensed suppliers are the only organisations permitted to provide electricity or gas supplies to non-domestic properties.

This section summarises the key Ofgem regulations that apply to business energy suppliers.

💡 At Business Energy Deals, our experts prepare a monthly ranking of the best business energy suppliers.

Supply licence conditions

Every business electricity and gas supplier must hold a supply licence issued by Ofgem, which imposes the following legal obligations on business energy suppliers:

Fair treatment of customers – Suppliers must not engage in misleading, aggressive, or unfair practices in sales, contracting, billing, or renewals.
Honest and transparent communications – Suppliers must avoid misleading customers in all communications, including those relating to sales, marketing, and contracting.
Fair switching processes – Suppliers must streamline switching business energy suppliers, avoiding unnecessary delays in the objections process that could prevent a business from choosing another supplier.

Complaint handling

When handling customer complaints, business energy suppliers are required to:

Maintain effective complaint-handling procedures
Investigate complaints fairly and promptly
Co-operate with approved dispute resolution schemes for small business energy customers

Ofgem does not resolve individual customer complaints, but it uses complaint data to identify suppliers that may be breaching their licence conditions.

For more information, please visit our full guide to business energy supplier complaints.

Supplier solvency requirements

Supplier failures are an inevitable consequence of a competitive retail energy market. However, Ofgem imposes a range of financial controls to reduce the risks inherent in suppliers’ business models, including:

Ongoing financial reporting
Liquidity and capital adequacy expectations
Stress testing against wholesale price shocks
Restrictions on higher-risk business models

When a business electricity or gas supplier stops trading, Ofgem steps in to provide a safety net, ensuring that the supply of electricity and gas is not interrupted.

This process is known as the Supplier of Last Resort (SoLR). Ofgem appoints a new supplier, usually within days, and arranges for any existing customer credit balances to be transferred, ensuring continuity of energy supply.

Find out more in our full guide to business energy suppliers going bust.

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