Ofgem has not delivered value for energy-consumers in its transmission and distribution networks regulation, according to a new report from MPs on the Westminster Energy and Climate Change Committee.
The report says that the new regulations are an improvement on what went before, but the committee has warned that price caps set by the regulator have been too generous and performance targets too low.
The report suggests Ofgem utilise the new RIIO price control frameworks to put more pressure on the networks to limit their costs as well as provide greater incentives to connect new and smaller energy generators to the grid to increase market competition.
MP Tim Yeo, Committee Chairman, said: “The costs charged by the companies that have a near monopoly over the UK’s gas and electricity networks are often overlooked when energy bills are discussed. But network costs are one of the main reasons dual fuel bills have risen in recent years.
“Ofgem has created a new regulatory framework designed to ensure that network costs are competitive and that profits aren’t excessive, but there is clear evidence that the companies are making higher profits than expected.
“Ofgem told us that we would have to wait eight years to see whether value for money was being delivered for bill payers. This is too long for hard pressed consumers to wait.
“Ofgem must get its act together and scrutinise these near monopolies more effectively. Simpler charging methodologies are needed to strengthen the market’s ability to scrutinise costs and increase the pressure for greater cost-saving efficiencies.
“Barriers preventing smaller players from entering the market must be removed to drive down costs for consumers.”
The report calls for an in-depth study on the pros and cons of replacing the regional variations for network charges with a standard national tariff and says market conditions could be improved if:
- an interim independent audit of price controls is conducted;
- the 40-day notification period network companies are required to allow for price changes is increased to 15 months; and
- stronger, corrective measures are applied to network companies that have received incentive payments for reducing energy leakages when such reductions have not taken place.