Energy regulator ‘must get act together’ for consumers
MPs call on Ofgem to improve its scrutiny of network providers
CONSUMERS are being let down by the energy regulator which is failing to ensure they are getting value for money when it comes to their energy bills, a government committee has found.
The Commons Energy and Climate Change Committee has criticised Ofgem over its handling of the costs of gas and electricity distribution – claiming new price caps are too high while performance targets are too low.
The costs are set by network firms who charge energy companies for using their infrastructure.
This charge is then passed on to consumers, making up a large chunk of their overall bill. It currently accounts for around 23 per cent of a dual fuel bill, which is estimated at an average of more than £900 annually for gas and electricity.
In 2013, Ofgem introduced a new price control framework to limit the growing charges and ensure that costs are competitive and profits are not excessive.
However, the committee – which described network providers as “near monopolies” – said there was “clear evidence” that the network companies were making higher profits than expected.
Committee chairman Tim Yeo also criticised claims by Ofgem chief executive Dermot Nolan that it could be eight years before consumers can be told whether or not the new framework is delivering value for money.
Mr Yeo said: “Ofgem’s chief executive told us that we would have to wait eight years to see whether value for money was being delivered for bill payers.
This is too long for hard-pressed consumers to wait.
“Ofgem must get its act together and scrutinise these near monopolies more effectively.
“Simpler charging methodologies are needed to strengthen the market’s ability to scrutinise costs and increase the pressure for greater cost-saving efficiencies.
“Barriers preventing smaller players from entering the market must be removed to drive down the costs for consumers.”
Ofgem’s new framework for network companies is known as RIIO (revenue = incentives + innovation + outputs).
In its report, the committee said that network costs were “one of the main reasons dual fuel bills have risen in recent years” and network companies were still making higher profits than expected.
It stated: “This suggests that the targets and incentives set by Ofgem are too low, barriers to market entry are high and that Ofgem needs to monitor RIIO more effectively and to equip RIIO with stronger, corrective measures.
“While we recognise that the new RIIO framework is an improvement on its predecessor, Ofgem has not yet created the conditions for the market to thrive and provide consumers with best value for money.”
The report also highlighted the complexity of the charging system and called on the government and Ofgem to conduct an in-depth study into the merits of replacing it with a standard national tariff.
An Ofgem spokesman said: “Ofgem notes the committee’s views and welcomes debate on the regulation of the energy network and believes our regulation has delivered value for money.
“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 £900 million of benefits to consumers in the next eight years.”
The committee report comes after Ofgem announced plans to force major power suppliers to tell their customers if their cheapest deal is marketed under a different brand.