Energy network operators have racked up over half a billion pounds in “stealth revenue” after exploiting Ofgem rules and now campaigners are calling on MPs to back an urgent inquiry into the missing millions.
The staggering figure, revealed in the latest Warm This Winter Tariff Watch Report, compiled by Future Energy Associates, analysed the electricity network costs which are added to customers' standing charges. [1]
These charges have surged 119% since winter 2020/21 and account for £194 a year for every household.
A fundamental part of those charges are the budgets set for “Distribution Network Operators” (DNOs) who operate the grid which supplies electricity to homes and are responsible for maintaining and upgrading the grid. These budgets and therefore the amount they pass onto consumers through standing charges is forecasted in advance.
Overestimation of these costs can mean that DNOs underspend and could potentially profit under a complex system called the “totex incentive mechanism” (TIM). This splits the benefit of any underspend between customers and the DNO.
Between 2015 and 2022, DNOs spent £933 million less than they forecasted, but only gave around half of that money straight back to consumers.
This is the equivalent of £523m (roughly £18 for each household) in revenue made just by network operators overestimating how much they think they will spend.
Electricity North West, National Grid Electricity Distribution (formerly Western Power Networks) and UK Power Networks are the worst offenders. These three companies taken together have a combined underspend of more than £1.1bn. [2]
Shockingly, the report also reveals that between 2015 and 2022, energy firms have underspent by £2.25bn on plans to upgrade the electricity network. While these firms have overspent on short-term costs during this period, the lack of investment in the grid means that electricity prices remain high despite Britain’s successful renewables industry.
Simon Francis, Coordinator of the End Fuel Poverty Coalition, commented:
“This eye-opening report has revealed the stealth revenue energy firms have been able to bring in from the bill payer.
“We are paying upfront for vital infrastructure upgrades which could help bring down electricity bills, but when these improvements are not delivered and the money is seemingly not returned in full to bill payers.
“We are calling on MPs to back an urgent investigation into this issue, to examine the extent of monies which could and should be returned to the bill payer and to ensure Ofgem puts in place measures to ensure future underspend is returned to bill payers and end the TIM regime.”
An open letter has now been sent to MPs demanding that action is taken urgently to track down where the missing millions are.
Fiona Waters of the Warm This Winter campaign, which commissioned the report, added:
“The findings of the latest Tariff Watch Report reveal a disgraceful picture.
“Instead of helping bring our energy bills down, these energy firms are artificially keeping costs high. This apparent inability to estimate how much it costs for them to run a business is a breathtaking display of incompetence.
“The transition to cheap, renewable and clean energy is now at threat from this scandal and - with Ofgem’s new responsibility to help the country achieve net zero, it must act.”
Clement Attwood, Managing Director at Future Energy Associates, commented:
“This is clearly a complex picture, the over-estimation of costs and subsequent underspend warrants further scrutiny. On the other hand, under-estimation of investment required could mean the DNO is not able to serve customers effectively.
“Whilst DNOs continue to benefit from the totex incentive mechanism, questions need to be asked about how well the regulators’ performance indicators hold DNOs to account for meeting current and future needs.”
NOTES
[1] Warm This Winter Tariff Watch, edition 3.
[2] The reason this is more than the 933m total is that some DNOs - especially Scottish Power Networks - have overspent. Although (along with Manweb) Scottish Power Energy Networks does have some of the highest standing charges in the UK. DNO allowance and expenditure cumulative 2015-16 to 2021-22:
| DNO Operator (sharing rate) | DNO Region | Allowance | Expenditure | Difference | |
|---|---|---|---|---|---|
| £m | £m | £m | % | ||
| Electricity North West (58%) | North West | 2,085 | 1,917 | -168 | -8% |
| Northern Power Grid (56%) | North East | 1,472 | 1,515 | 43 | 3% |
| Yorkshire | 1,953 | 1,921 | -32 | -2% | |
| National Grid Electricity Distribution (70%) | Midlands | 2,318 | 2,329 | 11 | 0% |
| East Midlands | 2,346 | 2,312 | -34 | -1% | |
| South Wales | 1,228 | 1,163 | -65 | -5% | |
| South West | 1,890 | 1,831 | -59 | -3% | |
| UK Power Networks (53%) | London | 2,007 | 1,741 | -267 | -13% |
| South East | 1,941 | 1,657 | -284 | -15% | |
| East Anglia | 2,889 | 2,622 | -268 | -9% | |
| ScottishPower Energy Networks (54%) | South Scotland | 1,747 | 1,792 | 45 | 3% |
| MANWEB | 1,952 | 2,037 | 85 | 4% | |
| Scottish and Southern Electricity Networks (56%) | North Scotland | 1,492 | 1,519 | 26 | 2% |
| Southern | 2,635 | 2,670 | 34 | 1% | |
| Total | GB | 27,957 | 27,023 | -933 | -3% |
