Citizens Advice, the consumer charity, has urged Britain’s energy regulator to take an even harder stance on the returns energy network companies should be allowed to earn from next year, arguing an additional £1.7bn could be saved from consumers’ bills.
In July Ofgem proposed cutting networks’ annual rates of return nearly in half for the five years from next April to 3.95 per cent, in a move that it claims would save £3.3bn over the period for consumers, who meet the costs of maintaining electricity and gas infrastructure via their energy bills.
But Citizens Advice claimed on Friday that Ofgem was still being too generous in some of its calculations, particularly around the risks involved with network businesses and comparable returns investors could generate if they ploughed their funds into the stock market.
The charity also said the regulator should take into even greater account network companies’ past performance as they have frequently outstripped the regulator’s estimates.
Consumers have no choice over who manages their energy infrastructure so network companies’ returns are regulated over a set period known as a “price control”.
Citizens Advice has become a significant voice in the debate since 2017 when it produced a report claiming network companies were making “eye-watering” profits at the expense of British households. The regulator subsequently promised to take a tougher approach on future price controls, which start next year for owners of national gas and electricity infrastructure, plus local gas grids. The next regulatory period for local electricity networks starts in April 2023.
Citizens Advice’s latest intervention is likely to anger network companies such as National Grid, SSE and ScottishPower who have been lobbying furiously for the regulator to revise its proposals before it makes a final decision in December. In its latest assault, National Grid said on Monday that Ofgem’s proposals were “unacceptable” and would inhibit its ability “to maintain resilient and reliable networks”.
Wales & West Utilities, a local gas company with 7.5m customers, has warned its owner, Hong Kong infrastructure investor CKI, that it risked making “zero cash returns” under Ofgem’s proposals.
Gillian Guy, chief executive of Citizens Advice, acknowledged that networks companies had been “aggressively pushing back against the regulator’s proposals” but claimed: “The only thing really at risk here are the excessive profits these companies have made by overcharging consumers.”
Dame Gillian urged the regulator to “hold its nerve in the face of the significant pressure from the networks and look at whether it can go further”.
Ofgem said it expected “companies to run themselves efficiently and accept lower returns in line with current market conditions”.
But it added it also needed “to balance this with ensuring that Britain’s world class stable regulatory regime attracts the right amount of investment”.