A £285 rebate should be given to every gas and electricity user in the UK after they were charged too much by network operators.
That’s according to Citizens Advice, which has suggested energy network companies have made around £7.5 billion in profits at the expense of consumers over the last eight years.
The national charity says key decisions made by regulator Ofgem allowed the companies running the UK’s grid to make returns that do not accurately reflect their performance or efficiency.
Due to the regulated monopoly structure of the market, Ofgem forecasts the costs for building and maintaining energy networks, as well as estimating the level of business risk for investors.
Profits are then taken from the difference between actual costs and the amount Ofgem predicted would be spent.
It is expected network companies will currently see an average 19% profit margin, compared to the 4% profit margin earned by the largest energy suppliers.
Citizens Advice says Ofgem cost consumers £3 billion by overestimating business risks in the sector to be as high as in the average company (90-100%) – it says a more reasonable figure would be 60%.
The group says the regulator also assumed interest rates and returns for government bonds would be higher than they were, costing consumers £3.4 billion.
Finally, energy users subsidised financial incentives to reward efficiency £1.1 billion – the charity says these actually rewarded companies inflating their initial cost predictions.
Gillian Guy, Chief Executive of Citizens Advice, said: “Energy network firms are enjoying a multi-billion pound windfall at the expense of consumers.
“Decisions made by Ofgem have allowed gas and electricity network companies to make sky-high profits that we’ve found are not justified by their performance.”
Ofgem’s Chief Executive Dermot Nolan said: “Ofgem’s regulation of Britain’s energy networks is cutting costs, increasing reliability to record levels and improving customer satisfaction for consumers.
“Today we are setting out our plans for the next price control and along with other utility regulators are signalling that the next price control will be tougher for investors.
“While we don’t agree with its modelling and the figures it has produced, the Citizens Advice report raises some important issues about network regulation which will be addressed in the next control.”