Customers overcharged by £24bn due to regulator error, Citizens Advice claims

Citizens Advice is calling for companies to return some of this to customers through a rebate on their bills and for regulators to stop this happening again.

The research follows its 2017 report, which found Ofgem made errors in setting price controls for energy networks, resulting in energy customers being overcharged £7.5 billion over an eight-year period.

Following the report three energy network companies returned some money to consumers.

Citizens Advice has now found that the same errors have been made by Ofgem over a much longer period and by regulators in other markets including water, broadband and phone networks over the past 15 years.

This research shows misjudgements by the regulators (Ofgem, Ofwat and Ofcom) on key decisions have meant customers have been paying far too much for the pipes and wires that connect energy, broadband, phones and water to their homes.

According to Citizens Advice, these overpayments partly occurred because regulators made forecasting errors. They predicted that costs, such as debt, would be higher than they in fact were.

The charity is recommending that, instead of forecasting costs, regulators should use available market data to calculate costs and adjust their estimates of investment risk. This would avoid consumers paying too much in future.  

Citizens Advice is calling for all firms to provide a voluntary rebate to their customers. If they don’t, they want the government to step in.

Gillian Guy, chief executive of Citizens Advice, said: “Regulator error has meant customers have been charged too much by energy, broadband and phone networks for far too long.

“At a time when so many people are struggling to pay their essential bills, regulators need to do more to protect customers from unfair prices. They have started to take steps in the right direction but it is vital they continue to learn from their past mistakes when finalising their next price controls.

“Companies need to play their part in putting this multi-billion pound blunder right. They must compensate customers where they have been paying over the odds. If they don’t government needs to intervene.”

 

Industry reaction:

David Smith, chief Executive of Energy Networks Association, said: “The calculations underpinning this research are simply wrong, with the numbers plucked out of thin air. The analysis conveniently ignores the pace of change that has been taking place in our country’s energy infrastructure to deliver record levels of renewable energy and prepare for things like electric vehicles, producing an inflated figure as a result.

“The full cost of these changes is not reflected in this research. The fact is that overall network costs are down 17% since 1990, delivering savings for the public by running a world-class system of energy networks more efficiently. Meanwhile over the past six years alone more than £32 billion has been invested in Britain’s network infrastructure, helping drive economic regeneration in communities across the country whilst securing a sustainable and affordable energy supply for future generations.”

 

An Ofgem spokesperson said: “Ofgem remains determined to drive the best deal possible for consumers. Overall, energy network regulation has delivered for consumers, with £100 billion invested, power cuts halved, record customer satisfaction and reduced costs.

“While we do not agree with Citizens Advice’s estimate of excess profits, we welcome their report and recommendations. We will continue to work closely with them and wider stakeholders to apply lessons learnt from previous price controls for the next price control period (RIIO2).

“Our plans include the lowest ever returns for investors in energy networks which would cut costs for consumers by £6 billion.”

 

A spokesperson for SSE said: “It is right regulatory systems are scrutinised but it’s important this is done on the basis of complete evidence. Applying today’s assumptions to yesterday’s market conditions and price controls is not the basis of sound research.

“This report recycles the same flawed methodology as previous analysis, completely ignores the significant investment and performance improvements that an effective incentive-based regulatory system has delivered and uses selective metrics to support its arguments.

“SSE targets a post-tax return of between 4 – 5% from its regulated network businesses, which continue to deliver record levels of investment, improvements in reliability and lower costs to consumers.”

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