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Citizens Advice have found that the mechanism through which Ofgem sets how much money energy companies can make is “far too generous” to the networks. This generosity has allowed energy firms to make billions in additional profits, according to the charity.
Ofgem, for its part, has cut the proposed returns of energy networks by half, saving consumers £3.3billion.
This has been done through adapting its price control methods, known as RIIO-2.
However Citizens Advice, in response to Ofgem’s consultation on RIIO-2 Draft Determinations, says the regulator has still been too generous to the networks (the companies responsible for the infrastructure of gas and electricity).
According to analysis from the charity, by using metrics, which more accurately reflect the returns these companies would make on the open market, the regulator could go further than its current proposals.
If Ofgem were to adopt the changes suggested by Citizens Advice, energy customers could end up saving £1.7billion over the course of the five-year price control schedule.
Dame Gillian Guy, the Chief Executive of Citizens Advice, commented on the state of price controls: “Nearly three years ago we set out how the previous price control had allowed energy networks to make billions in unjustified profits.
“Ofgem has made significant progress on delivering a price control that is value for money for consumers.
“But right now energy networks are aggressively pushing back against the regulator’s proposals.
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“They’ve even claimed the price control will put more people at risk of blackouts and jeopardise the net-zero transition.
“But 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.”
In August, Ofgem released its latest plans on the price cap, with the changes set to take effect from October.
The regulator revealed that the level of the price cap will fall by £84 from October to its lowest level of £1,042, driven by lower wholesale energy costs following coronavirus.
They detailed that prepayment meter customers will see their bills fall by £95.
Jonathan Brearley, the chief executive of Ofgem, provided the following comments along with the announcement: “Millions of households, many of whom face financial hardship due to the COVID-19 crisis, will see big savings on their energy bills this winter when the level of the cap is reduced.
“They can also reduce their energy bills further by shopping around for a better deal.
“Ofgem will continue to protect consumers in the difficult months ahead as we work with industry and government to build a greener, fairer energy market.”
Ofgem went on to recommend that the price cap is not lifted until the end of this year and that it should remain in place in 2021, for these households on default tariffs and prepayment meters.
While the price cap itself will result in lower bills for many it should be noted that some providers are offering deals which offer better rates than what the cap sets.
According to Martin Lewis, consumers may be able to find more beneficial deals from the likes of Utility Point, Shell Energy and British Gas among others.
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