Consumers overcharged by £24bn on utility bills and should get compensation, says Citizens Advice

Regulators allowed energy, broadband and water firms to collect billions more than they should have over 15-year period, research finds

Ben Chapman
Thursday 30 May 2019 19:46 BST
Consumers overcharged by £24bn on utility bills and should get compensation, says Citizens Advice

Millions of people could be in line for compensation after regulators' blunders meant consumers have been overcharged by a staggering £24bn on their utility and broadband bills.

Citizens Advice calculated that regulators have allowed energy, water and telecoms firms to collect billions of pounds more than they should have over the past 15 years.

It is calling for companies to return some of the money to customers through a rebate on their bills. If successful, the move could mean the majority of UK's 19 million households receiving compensation.

According to Citizens Advice, regulators for all three sectors set price controls that benefited companies at the expense of consumers who ended up paying too much for the pipes and wires that connect energy, broadband, phones and water to their homes.

Ofgem, Ofwat and Ofcom overestimated how risky utility businesses were, handing a windfall to companies and their shareholders on relatively safe investments. This windfall was ultimately funded by ordinary consumers through their utility bills.

The watchdogs also predicted that costs utility network firms' costs such as debt would be much higher than they turned out to be, Citizens Advice said.

It is now calling for utility firms to negotiate with regulators over how much money should be returned to consumers.

If a satisfactory deal for households is not reached, the government must step in, Citizens Advice said.

Citizens Advice chief executive Gillian Guy said customers have been charged too much by energy, broadband and phone networks "for far too long".

“At a time when so many people are struggling to pay their essential bills, regulators need to do more to protect customers from unfair prices," Ms Guy said.

"They have started to take steps in the right direction but it is vital they continue to learn from their past mistakes when finalising their next price controls.

“Companies need to play their part in putting this multibillion-pound blunder right. They must compensate customers where they have been paying over the odds. If they don't, government needs to intervene.”

In 2017, Citizens Advice found Ofgem had made errors in setting price controls for energy networks, resulting in customers being overcharged £7.5bn over eight years.

Three energy network companies – SGN, Western Power and Scottish and Southern Electricity Networks – returned £287m to customers following the findings.

But the charity said it had now found this was the “tip of the iceberg”, claiming that Ofgem made the same errors over a much longer period while regulator decisions across other markets including water, broadband and phone networks had cost customers money over the past 15 years.

Rebecca Long-Bailey, Labour’s shadow business secretary, said: "It's important not to forget the human face behind these eye watering sums – families pushed into hardship paying for the basic necessities of life, ripped off by profiteers and failed by regulators.

"These figures illustrate why Labour's plan to bring water and energy networks back into public ownership is so popular. Households across the UK have been taken for a ride, and we cannot afford to let it continue."

Last week, Ofgem confirmed it will pursue even tighter restrictions on how much profit energy companies can make, in a move it said will result in lower prices for customers.

The regulator unveiled its desired methodology for the second energy price cap, which is expected to save consumers around £6bn over the five years to 2026.

Ofwat has since indicated substantially lower returns for investors from 2020, and in April announced a deal with three water companies that could see some bills fall by as much as £70 a year for eight million households.

Ofgem said: “Ofgem remains determined to drive the best deal possible for consumers. Overall, energy network regulation has delivered for consumers, with £100bn invested, power cuts halved, record customer satisfaction and reduced costs.

“While we do not agree with Citizens Advice's estimate of excess profits, we welcome their report and recommendations. We will continue to work closely with them and wider stakeholders to apply lessons learnt from previous price controls for the next price control period.

“Our plans include the lowest ever returns for investors in energy networks which would cut costs for consumers by £6bn.”

Additional reporting by PA

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