Energy customers 'to save £45 a year' as Ofgem caps shareholder payouts to gas and electricity firms

Companies that run the pipes and wires which supply British homes have come under fire for bumper payouts, which will be reduced

Ben Chapman
Tuesday 18 December 2018 17:38
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“Energy network companies have had it too good for too long,” said Gillian Guy, chief executive at Citizens Advice
“Energy network companies have had it too good for too long,” said Gillian Guy, chief executive at Citizens Advice

Consumers could save £45 on their gas and electricity bills after Ofgem said it was “driving a harder bargain” with energy network companies.

The firms that run the pipes and wires which supply British homes with energy have come under fire for bumper payouts to shareholders while millions struggle to afford adequate heating as bills rise.

On Tuesday the energy regulator said it would slash the returns that investors in energy network companies receive to 4 per cent from 7 to 8 per cent.

Shares in National Grid, which was privatised in the 1990s, dropped 9 per cent after the news.

In total, the measures are set to save households £6.5bn from 2021 onwards, or £45 per year, Ofgem said

“Energy network companies have had it too good for too long,” said Gillian Guy, chief executive at Citizens Advice.

“Ofgem's commitment to a tougher price control should curb the excess profits networks have been allowed to make.

“This is good news for people as this should result in lower bills. It is vital now that Ofgem continues to hold its nerve in the face of the inevitable push back from industry.

Energy network companies do not provide services directly to households and so their contribution to gas and electricity bills has often been overlooked.

But research last year by Citizens Advice found that the companies had raked in around £7.5bn in “unjustified” profits over eight years - £285 from every household in Britain.

The firms have a relatively low-risk business with each having a monopoly over a geographical area.

Ofgem is in charge of putting in place price controls to ensure that consumers don’t get ripped off but Citizens Advice said that the regulator has been far too generous, handing companies and their shareholders an unearned windfall.

“It’s long been suspected that efficiencies were possible with the super profits at National Grid into the billions a year a clear red flag,” said Mark Todd, co-founder of energyhelpline.

“It is fantastic that Ofgem are taking action today and we applaud them for it.”

Gas and electricity bills have risen sharply this year as suppliers pass on rising wholesale energy costs. All of the Big Six companies which dominate the market have increased prices at least once in 2019.

A long-awaited government price cap on standard variable tariffs (SVTs) will come into force on 1 January but average energy costs will still be significantly above their level last winter.

More than 3,000 people “needlessly” die each year in the UK because they cannot afford to properly heat their homes, research by National Energy Action found.

Consumers are advised to regularly switch suppliers in order to ensure they are on the best deal.

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