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The companies behind Great Britain’s gas pipes and power lines have pocketed a windfall of nearly £4bn from household bills during the energy and cost crisis, according to a report.
The analysis, by Citizens Advice, argued that energy network owners were able to make the “excess profits” over the past four years after the industry regulator misjudged their costs.
The companies may have made up to £3.9bn more because Ofgem overestimated their borrowing costs as interest rates began to climb, the report calculated. It found that Ofgem allowed regional network companies to recover these costs from household bills even though many were able to secure fixed-rate terms on some of their borrowing which helped them to avoid the impact of rising interest rates.
The flaw in Ofgem’s regulation, which applies from 2021 to 2028, has meant that households were forced to pay billions in undeserved profits to companies during the cost of living crisis while racking up record levels of debt, according to Citizens Advice.
Dame Clare Moriarty, the charity’s chief executive, said: “We now know that while households have struggled with sky-high energy bills, network companies have been making astronomical profits.”
The charges paid to regional energy networks – including National Grid, UK Power Networks and Scottish Power – are controlled by the regulator through a complex set of assumptions and calculations. These are meant to allow the network owners to recover their costs, while offering an incentive to boost their profits by “overperforming” against the regulator’s targets.
However, Citizens Advice claimed that the profits were “undeserved” and above and beyond what would be reasonable.
Moriarty said: “We’ve called out the billions of pounds of excess profits made by these companies before, and Ofgem said it would get tougher in subsequent price controls. The measures it put in place have clearly failed.
“Networks should now do the right thing and give this money to those billpayers still struggling, by funding much-needed debt relief and targeted energy bill support”
A spokesperson for Ofgem said the issue raised by Citizens Advice would “amount to a few pounds a year on consumer bills”.
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The spokesperson said: “After a wide and public consultation we decided to adjust our price controls going forward so that such inflation shocks do not lead to any excessive financial overperformance.
“We have also made clear that network companies can and should use the temporary effect of higher inflation to strengthen their balance sheets to benefit consumers and support those who need it most.”
A spokesperson for the Energy Networks Association, which represents network companies, said the Citizens Advice report was “overly simplistic” and ignored “the longer investment timeline”, adding: “Electricity networks are bringing in private investment of more than £100bn between 2021 and 2031, investing in our grid to promote growth in our economy. It’s crucial to keep the regulatory environment stable during this time.”
