Ofgem could save consumers a further £1.7 billion during the next set of energy network price controls (RIIO-2).
That’s the claim from Citizens Advice, which in 2017, found energy networks would make up to £7.5 billion in unjustified profits over the course of the current price control due to regulatory errors.
For RIIO-2, Ofgem has recommended cutting the proposed returns of energy networks by half, saving consumers £3.3 billion for the gas and transmission sectors alone and slashing profits for operators.
However, Citizens Advice says the regulator has still been too generous to the networks and has suggested new metrics be used – it says these metrics more accurately reflect the returns that are likely to be made on the open market and would result in significant savings for consumers over the duration of the five-year price control.
It notes the regulator could also “claw back” more money from networks if they outperform the price control, which it suggests could save consumers a further £1.2 billion.
Dame Gillian Guy, Chief Executive of Citizens Advice, said: “Nearly three years ago we set out how the previous price control had allowed energy networks to make billions in unjustified profits.
“Ofgem has made significant progress on delivering a price control that is value for money for consumers. But right now energy networks are aggressively pushing back against the regulator’s proposals. They’ve even claimed the price control will put more people at risk of blackouts and jeopardise the net zero transition.
“But the only thing really at risk here are the excessive profits these companies have made by overcharging consumers. The regulator must hold its nerve in the face of the significant pressure from the networks and look at whether it can go further.”
An Ofgem spokesperson told ELN: “We’re unlocking unprecedented funding for projects that cut carbon emissions to create a green, fair and secure energy system for consumers now and in the future.
“Investment in energy infrastructure comes from consumers’ bills, so we expect companies to run themselves efficiently and accept lower returns in line with current market conditions. But we also need to balance this with ensuring that Britain’s world-class stable regulatory regime attracts the right amount of investment.
“Ofgem strikes this balance by only green-lighting investment proposals where there is robust evidence to support them. This will help keep network charges affordable while allowing more investment to help fight climate change and maintain security of supply.
“Our consultation has closed and we are going through all the responses to inform our final decision.”
David Smith, CEO of Energy Networks Association, which represents the UK and Ireland’s energy networks businesses, said: “The proposals from the networks would keep bills broadly flat and were informed by tens of thousands of customers who participated in events across the country.
“Network costs are down 17% since the mid-90s despite record investment. Further investment in networks is needed now if we’re to maintain safe, reliable energy supplies, reach net-zero emissions and power a green recovery.”