Electricity distribution networks including SSE, Western Power and UK Power Networks have come under fire for loading the costs of energy advice for struggling households on to customers.
The six monopolies, which have not yet been targeted for a windfall tax, work with charities to advise people struggling with fuel poverty on how to apply for benefits, grants and other energy efficiency measures. The cost of the advice is passed on to other customers’ bills.
But in a series of hearings with Ofgem aimed at helping the regulator decide how much the distributors can charge, they were asked by the regulator why they could not pay to help struggling households themselves.
Recently released transcripts show that Christine Farnish, a non-executive on the regulator’s board, asked the country’s largest electricity distributor UK Power Networks: “Why are you not proposing to fund this entirely through your own charitable foundation? Why are you expecting other hard-pressed customers to put their own hands in their own pockets to co-fund this — it actually benefits your reputation.”
Basil Scarsella, chief executive of UK Power Networks, replied: “Certainly it benefits our reputation, but I think what we’ve struck is a reasonable balance between funding it ourselves and putting some of it into the totex [total expenditure] allowance.”
Ofgem, which is under pressure for failing to protect consumers from rising bills, decides how much the networks can charge because they provide an essential service with no competition in the areas in which they operate. All their revenues and any investment in their network, which includes electricity pylons and other infrastructure, is paid for out of customer bills.
The regulator is planning to lower potential returns from 2023.
Ofgem said this week it expected average household bills to rise by a further £800 in October to £2,800, meaning they will have risen by 119 per cent in a year. The costs of electricity distribution accounts for about a fifth of customer bills.
Gillian Cooper, head of energy policy at Citizens Advice, said: “Customers already struggling to cover rising energy bills shouldn’t be paying for support schemes out of their own pockets. Given the significant profits network operators have been making, it’s only right that they shoulder more of the costs.”
Citizens Advice believes the cost of providing the advice could rise from £1.5mn a year to £15mn or even £25mn during the current crisis.
In the year to March 31 2020, UK Power Networks, which operates in the south-east and East Anglia, delivered a pre-tax profit of £614.8mn on revenues of £1.76bn, while paying out £237mn in dividends as well as £76.9mn in interest on shareholder loans. The company is owned by Hong Kong billionaire Li Ka-shing’s CK Infrastructure Holdings but is up for sale.
In a hearing with Kendal Morris, head of Scottish Power Energy Networks, Ofgem chief executive Jonathan Brearley cited the example of a low-income family whose bill was increased to pay for the support scheme but who would not benefit from any help.
“How would that make you feel if you were that kind of customer?” he asked, adding: “Would you be encouraging the company to try and absorb some of this from their own shareholders?”
Morris replied that it had asked customers who were not vulnerable if they would be willing to pay for these services. “The answer was that absolutely they wanted us to deliver this in this way.”