“Staggering” £800m overpaid to electricity networks
It is staggering that UK households have overpaid the electricity networks by at least £800 million over the last eight years through higher bills than necessary.
“This means bills for consumers have been creeping up by £1.60 every year more than necessary,” said green energy expert Ron of Noreus Ltd on the University of Keele Science and Innovation Park. “Although only a small amount annually it mounts up after many years.”
He was commenting on a report by the parliamentary watchdog, the National Audit Office (NAO), that the energy regulator, Ofgem, had allowed some power companies to set cost budgets too high and network performance targets too low.
The privatised electricity business is divided into the supply companies – the ones customers deal with, which buy and sell the power – and companies which manage the delivery of electricity from power stations via gas pipes, pylons and electricity cables to our homes.
Gas and electricity networks have been heavily regulated since privatisation began in the late 1980s.
These transmission and distribution companies, which include the National Grid, are in the private sector.
These network operators present their investment plans and what it will cost to the energy regulator, Ofgem, which sets an upper limit to the return they can make.
Network costs account for about 20 per cent of an average electricity bill equivalent to about £130 a year.
Current rules, known as RIIO-1, give electricity networks an allowance to run and invest in their systems. If they spend less, they can keep half of the savings and return half to customers.
During the full eight years of RIIO-1, due to end in 2021, the distribution networks expect to underspend by 3 per cent on average. One company, National Grid Energy Transmission, forecasts a 22 per cent underspend. Only one business will overspend its allowance.
But the National Audit Office has criticised Ofgem saying the eight-year regulatory period (2013-2021) was too long and the network performance targets were too low because they were afraid the companies might fail and have to be rescued.
As a result, the NAO said, energy network investors have seen returns of 9%, compared with between 5 per cent and 6per cent at other UK companies.
In reply, Ofgem said the networks had provided good service and met many targets regarding safety, environmental concerns and reliability, with Britain suffering fewer power cuts than most other EU countries.
It acknowledged that consumer costs have been higher than necessary, but said it was improving the system and that a new round of price controls would lower returns to save households money.
It would also introduce new, shorter five-year price control periods, while the amounts companies could return to shareholders would also be cut.
“Energy networks have enjoyed a major windfall at the expense of consumers,” said Ron. “Now they must deliver a price control that works for consumers.”
For more information about green energy call Ron on 0845 474 6641.