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| Energy networks' £7.5bn windfall 'should be returned to consumers' | Energy networks' £7.5bn windfall 'should be returned to consumers' |
| (7 months later) | |
| Firms that transmit electricity and gas, such as National Grid, have ‘eye-watering’ profit margins, says Citizen’s Advice | |
| Adam Vaughan | |
| Wed 12 Jul 2017 00.01 BST | |
| Last modified on Mon 27 Nov 2017 20.20 GMT | |
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| Energy networks have been accused of exploiting UK consumers to enjoy a £7.5bn windfall of unjustified “sky high” profits, and urged to return the money in the form of a one-off £285 rebate to every household. | Energy networks have been accused of exploiting UK consumers to enjoy a £7.5bn windfall of unjustified “sky high” profits, and urged to return the money in the form of a one-off £285 rebate to every household. |
| Citizen’s Advice said the companies that transmit electricity and gas around the UK, including National Grid, were reaping “eye-watering” average profit margins of 19% from their monopolies. That compares with the 4% margin that big six suppliers, such as British Gas, make selling power and gas to householders. | Citizen’s Advice said the companies that transmit electricity and gas around the UK, including National Grid, were reaping “eye-watering” average profit margins of 19% from their monopolies. That compares with the 4% margin that big six suppliers, such as British Gas, make selling power and gas to householders. |
| The consumer group said Ofgem, which regulates the networks and sets limits on how much profit they can make, had allowed the firms to overinflate their projected costs of building pipes and wires. | The consumer group said Ofgem, which regulates the networks and sets limits on how much profit they can make, had allowed the firms to overinflate their projected costs of building pipes and wires. |
| The energy regulator had also overestimated the business risks faced by the companies, and did not foresee an unprecedented period of low interest rates and bond returns, the charity said in a report published on Wednesday. | The energy regulator had also overestimated the business risks faced by the companies, and did not foresee an unprecedented period of low interest rates and bond returns, the charity said in a report published on Wednesday. |
| Gillian Guy, chief executive of Citizens Advice, said: “Energy network firms are enjoying a multibillion pound windfall at the expense of consumers. | Gillian Guy, chief executive of Citizens Advice, said: “Energy network firms are enjoying a multibillion 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.” | “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 rejected the claim it had failed consumers and said it had cut the costs of transmission, which account for nearly a quarter of the average household energy bill. | Ofgem rejected the claim it had failed consumers and said it had cut the costs of transmission, which account for nearly a quarter of the average household energy bill. |
| Dermot Nolan, chief executive, said: “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.” | Dermot Nolan, chief executive, said: “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.” |
| The industry is halfway through an eight-year period of price controls that started in 2013 for gas distributors, electricity and gas transmission firms, and 2015 for electricity distributors. | The industry is halfway through an eight-year period of price controls that started in 2013 for gas distributors, electricity and gas transmission firms, and 2015 for electricity distributors. |
| Citizen’s Advice calculated that over the eight years, the energy networks would return more £25bn to their investors and creditors, and £7.5bn of that would be excessive profits. That central estimate compared to a low one of £3.5bn and a high estimate of up to £11.1bn. | Citizen’s Advice calculated that over the eight years, the energy networks would return more £25bn to their investors and creditors, and £7.5bn of that would be excessive profits. That central estimate compared to a low one of £3.5bn and a high estimate of up to £11.1bn. |
| While disputing the thrust of the report, Ofgem said that when setting the controls it had expected energy networks’ profit margins to range from around 7% to double digits. | While disputing the thrust of the report, Ofgem said that when setting the controls it had expected energy networks’ profit margins to range from around 7% to double digits. |
| In the event, it admitted that many had recorded returns at or around double digits. “When we look at this next time we need to learn the lessons of why that is the case,” said Jonathan Brearley, partner for networks at Ofgem. | In the event, it admitted that many had recorded returns at or around double digits. “When we look at this next time we need to learn the lessons of why that is the case,” said Jonathan Brearley, partner for networks at Ofgem. |
| “We fixed a set of assumptions. It turned out this time it has turned out to the benefit of companies. However it could have gone the other way to the benefit of consumers,” he added. | “We fixed a set of assumptions. It turned out this time it has turned out to the benefit of companies. However it could have gone the other way to the benefit of consumers,” he added. |
| Citizen’s Advice called for the excess profits to be returned to consumers in the form of a one-off rebate, which it calculated would be worth £285 a household – about a quarter of the average annual dual-fuel bill. | Citizen’s Advice called for the excess profits to be returned to consumers in the form of a one-off rebate, which it calculated would be worth £285 a household – about a quarter of the average annual dual-fuel bill. |
| Failure to do so would risk incurring the wrath of billpayers and politicians, it warned. | Failure to do so would risk incurring the wrath of billpayers and politicians, it warned. |
| “As their colleagues in the supply business know, it does not take much for public opinion to curdle against an industry,” the report said, in reference to calls earlier this year for a cap on the prices charged by energy suppliers. | “As their colleagues in the supply business know, it does not take much for public opinion to curdle against an industry,” the report said, in reference to calls earlier this year for a cap on the prices charged by energy suppliers. |
| If suppliers do not return the money to consumers, the government should step in, the group said. | If suppliers do not return the money to consumers, the government should step in, the group said. |
| On Wednesday, Ofgem will announce plans for the next set of price controls on energy networks, which will start in the 2020s. | On Wednesday, Ofgem will announce plans for the next set of price controls on energy networks, which will start in the 2020s. |
| The regulator said one question would be whether eight-year periods were a sensible length for the controls, with Citizen’s Advice saying that forecasting interest rates and other variables over such a long time was “an impossible task”. | The regulator said one question would be whether eight-year periods were a sensible length for the controls, with Citizen’s Advice saying that forecasting interest rates and other variables over such a long time was “an impossible task”. |
| Nolan said the next regime would be “tougher” for the energy networks. | Nolan said the next regime would be “tougher” for the energy networks. |
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