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Citizens Advice wades back into network costs row with controversial new report

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The Citizens Advice Bureau has once again stoked a war of words surrounding network costs by publishing a new report claiming to uncover regional disparities in how costs are passed onto consumers.

The report, and more specifically its use of figures published previously by the CAB, has attracted the ire of the Energy Networks Association (ENA), which has dismissed it as misleading.

Speaking to Clean Energy News, a spokesman for the ENA said: “We strongly disagree with the research and we feel to claim that consumers are definitively missing out on the money on the basis of a discredited methodology is misleading.”

Late last week the CAB published a new report, dubbed ‘The postcode lottery in energy profits’, which claimed to shed new light on profits made by those in charge of the UK’s networks and “regional disparities” in how those costs are passed onto consumers.

Central to the CAB’s criticism is the way in which network costs are regulated, an area of which it has been a vocal critic in the past. Its latest report goes further, suggesting that network companies are in an advantageous position as they “know more about costs” and “can afford expensive lobbyists and consultants”, which the consumer body says leaves the risk that decisions lean in the industry’s favour.

Using figures published previously – specifically the £7.5 billion of “unjust” profits recouped by network companies – the CAB claims that households in the east of England, an area maintained by UK Power Networks (UKPN), pay more than three-times towards these excessive profits than those customers in the north of Scotland.

The report finds that electricity distribution costs in North Scotland, maintained by SSE Hydro, accounted to £76 million of “excessive profits” under the current RIIO1 framework. Meanwhile the two worst-hit areas are purported to be the West Midlands (Western Power Distribution) at £230 million, and Eastern England (UKPN) at £242 million.

The CAB has also factored in energy transmission costs, causing the total figures to be much higher for English regions than in Scotland due to the country paying higher transmission costs to National Grid than Scottish customers pay to either SSEN or SP Energy Networks.

When broken down in per household terms, the CAB claims that eight-year excessive profits for electricity distribution range between £125 for homes in Merseyside and North Wales to £75 in London.

The report concludes with a series of recommendations for policy makers, chief among them that distribution companies either refund consumers through rebates on their energy bills or are forced to do so through government intervention.

The CAB has also recommended that future costs are indexed to ‘real world benchmarks’, and that the next set of controls – currently in the consultation phase with Ofgem – offer much tougher incentives than their previous iteration.

However the ENA has once again responded to the CAB strongly, claiming that the calculations underpinning the analysis are “plucked out of thin air” before noting that they counter the Competition and Markets Authority’s own conclusions.

In a blog published last Friday, the ENA has once again rallied at the CAB’s £7.5 billion figure, arguing that the analysis does not fully capture the cost of debt incurred by network companies (accounting for £3.4 billion of the CAB’s figure); that the body has underestimated the risk that network companies have to take when seeking financing (£3 billion); and that the CAB has misunderstood the way the price control system works (£1.1 billion).

“Network costs are down 17% under the current ownership model, delivering £9bn of savings for consumers by running a world-class system of energy networks more efficiently,” the ENA said.

The future of RIIO and network costs will be a central theme to the upcoming Future Power Networks UK conference, held between 25 – 26 September 2018 in central London. More information on this event can be found here.

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