Further savings of £1.7 billion could be created if Ofgem went further in RIIO-2 according to Citizens Advice.
The organisation today (11 September) released its response to the RIIO-2 Draft Determinations, highlighting how whilst Ofgem has cut the proposed returns of energy networks by half in its proposals – which Citizens Advice said will save consumers £3.3 billion – it could go further.
The consumer advice organisation said its view was that the regulator has been “too generous to the networks” on the cost of capital. Its analysis found that Ofgem could save a further £1.7 billion over the course of the five year price control period if its recommendations were taken on board.
It suggested that Ofgem could claw back more from networks if they outperform the price control, which it said has historically been the case, adding that when this arises from genuine efficiency it is good news for consumers but “frequently companies have outstripped the regulator’s estimates”.
It did acknowledge that Ofgem is taking account of this and looking to claw back some money, but that it feels the regulator “could go further”.
This is despite responses from Southern and Scottish Electricity Networks (SSEN) and ScottishPower Energy Networks (SPEN) slamming the draft determinations for being “manifestly flawed” and “miscalculated”.
SSEN in particular calculated that £172 million of the cuts outlined by the regulator were in fact a result of calculation and methodological errors and warned that if the proposals were left as they are, they will result in a failure to meet 2030 targets.
SPEN, too, outlined what it believes to be unfair cuts, including errors in the cost assessment process amounting to £66 million, contradictory cost assessment decisions amounting to £21 million and the removal of 75% of the risk management allowances at a cost of £35 million.
Errors made by Ofgem seem to be a common thread amongst the responses, although Citizens Advice pointed to its own analysis from 2017 that found the energy networks would make up to £7.5 billion in what it claimed were “unjustified profits” during the current price control (RIIO-1) due to errors made by Ofgem.
Dame Gillian Guy, chief executive of Citizens Advice, did praise Ofgem for making “significant progress” on delivering a price control that is value for money for consumers but criticised the energy networks for “aggressively pushing back”, dismissing their claims that RIIO-2 will put more people at risk of blackouts and jeopardise net zero.
“The only thing really at risk here are the excessive profits these companies have made by overcharging consumers. The regulator must hold its nerve in the face of the significant pressure from the networks and look at whether it can go further,” Guy said.
Calculations made by Citizens Advice have long been challenged by the Energy Networks Association (ENA), having described the 2017 analysis that found up to £7.5 billion could be made by the networks as “misleading”, in part, it said at the time, due to Citizens Advice underestimating the risks that networks take and misunderstanding the way the price control system works.
ENA chief executive David Smith pointed to how network costs are “down 17% since the mid-90s despite record investment”, stating that “further investment in networks is needed now if we’re to maintain safe, reliable energy supplies, reach net-zero emissions and power a green recovery”.