Consumers to save £5bn on energy bills

Mar 7, 2018


By Kate Brown

Ofgem has proposed new rules that could result in consumers saving up to £5bn over five years on energy bills.

The Office of Gas and Electric Markets plans to limit the amount of money consumers contribute to energy network investment via their bills, resulting in a £15-25 saving per household per year. The price control is proposed to come into effect in 2021, significantly reducing the amount of profit energy network companies will receive.

Since 1990, energy network companies have invested £100bn into national and local grid improvements, resulting in a 50% reduction in power cuts since 2001. Ofgem says the cost of transporting a unit of electricity around Britain has fallen by 17% since the 1990s, and whilst investing in the energy network is still important, the regulator said that network companies need to start consulting with consumers about their long term business plans, to ensure they are in line with what consumers want and are willing to pay for.

The energy watchdog also emphasised the need for companies to make use of the latest technologies to ensure the grids continue to run reliably, and support new technologies such as electric vehicles, electricity storage and local renewable generation. However, if energy network companies made savings due to technological innovations to make their networks more efficient, then they needed to share those savings with consumers.

A Citizens’ Advice report released in July 2017 analysing all the UK companies that transport gas and electricity claimed that energy network companies had made £7.5bn in “unjustified” profits. At the time, the Energy Networks Association (ENA) disagreed with the report.

Gillian Guy, chief executive at Citizens’ Advice said of Ofgem’s latest initiative, “Today’s announcement is a major step forward. These proposals should prevent a repeat of the billions in excess profits energy network companies are making under the current price controls. This means better value for consumers and potentially lower bills.”

ENA’s chief executive David Smith said the energy networks were at the heart of a “smarter, cleaner energy market”, and that if the industry was expected to use new services like electrical vehicles then the new price controls needed to be “balanced”. He added that ENA was happy to set up consumer engagement groups to improve customer satisfaction.

Ofgem’s senior partner for networks Jonathan Brearley said “The energy sector is rapidly changing and consumers must be confident they continue to get good value for money for the services networks deliver.”

It was announced on Monday that Ofgem is to formally ban gas and electricity suppliers from issuing customers with back-bills for energy used more than twelve months ago. Most of the big suppliers are bound by a voluntary agreement that prevents them chasing a domestic customer for energy supplied over a year ago, but after a consultation Ofgem has banned all suppliers, including small businesses, from back-billing where the customer has acted in good faith.

Most billing issues stem from problems with the supplier’s billing system, or because the meter isn’t correctly registered at the customer’s address. In this case, suppliers usually estimate bills until they have an actual meter reading that may show the customer’s consumption is higher than expected, in which case they then send a bill to recover the difference. Ofgem said the typical back-bill was over £1,100, but they can be much higher, leaving customers struggling financially, or even in debt, and can cause stress.

With the roll out of smart meters across the UK, suppliers will no longer need to rely on estimated bills or back-billing. Suppliers have an obligation to make sure they use the technology to provide accurate billing.

Rob Salter-Church, Ofgem’s interim senior partner for consumers and competition said, “Getting billing right is an essential part of customer service, and it’s unfair that consumers should be left out of pocket when through no fault of their own they’re issued with a shock bill from their supplier.”

Victoria MacGregor, the director of energy at Citizens’ Advice said, “Previously we’ve seen evidence of suppliers trying to game the rules by blaming customers for billing errors, cases where suppliers have ignored their commitments entirely.”

With these new regulations coming into effect over the next few years, consumers can expect lower, more accurate bills from their energy suppliers in the future.

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