MPs call for Ofgem to crack down on energy network costs

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The energy watchdog, Ofgem, has come under fire from MPs for exposing consumers to higher bills by failing to crack down on industry costs.

The Commons energy and climate change committee said new price caps for National Grid and other power distribution companies, intended to keep down the costs of distributing and transmitting gas and electricity, were too generous.

Network costs currently account for nearly a quarter of a dual fuel bill. These costs are passed on to consumers by gas and electricity suppliers who are charged by the network companies for using their transmission and distribution infrastructure.

In a report published one week after the Competition and Markets Authority found that millions of households are paying too much on their bills because they are failing to switch suppliers, the energy committee warned that network costs were an overlooked factor in high bills. The average dual fuel bill now costs more than £1,300 per year.

Tim Yeo, the committee’s chairman, said: “Network costs are one of the main reasons dual fuel bills have risen in recent years. Ofgem must get its act together and scrutinise these near monopolies more effectively.”

The committee raised concerns about the profits of network companies which have been greater than expected after the first year of a new regulatory framework introduced by Ofgem to reduce costs. MPs acknowledged that the new regulations are an improvement on what went before.

Ofgem’s chief executive, Dermot Nolan, warned the committee that it could be eight years before it becomes clear whether the new system is delivering value for money. Yeo said: “This is too long for hard-pressed consumers to wait.”
The committee called for an interim independent audit of price controls, longer notice periods before network companies put up costs and harsher penalties for network companies that fail to reduce energy leakages after being paid to do so.

MPs said the system of network costs was too complex, with charges varying across different regions of the country. They called for a review into the practicality of a national tariff to simplify charging and make prices less volatile.

The committee also called on the government to do more to encourage new, smaller generators to connect to the grid, to increase competition.

Stung by the criticism, Ofgem said it was already working to bring in some of the changes called for in the report, including more competition and longer notice periods for changes to charges.

An Ofgem spokesperson said: “Our regulation has delivered value for money. Britain’s energy network is 17% cheaper in real terms than 25 years ago, £80bn of investment has been secured, and reliability has improved by 30%.

“We are in the process of implementing a number of the actions the report highlights, including introducing more competition to networks and looking to increase the notification period of network charges. Additionally, we estimate that our innovation stimulus will see companies realise around £900m of benefits to consumers in the next eight years.”

Last week, the competition regulator found that the big six energy suppliers – SSE, Scottish Power, British Gas owner Centrica, npower, E.ON and EDF Energy – charge loyal customers, many of whom are on low incomes, up to £234 a year more than those who shop around.

On Friday, Ofgem announced that it was clamping down on “white labelling” by energy firms. The watchdog unveiled new rules which from July will force major power suppliers to alert their customers if their cheapest deal is marketed under a different brand.

Powered by article was written by Sean Farrell and Julia Kollewe, for The Guardian on Monday 23rd February 2015 00.01 Europe/London © Guardian News and Media Limited 2010