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Ofgem announces plans to reduce energy bills

Ofgem announces plans to reduce energy bills

Category: Gas and electricity

Updated: 31/07/2014
First Published: 31/07/2014

This article was correct at the time of publication. It is now over 6 months old so the content may be out of date.

In welcome news for energy customers, Ofgem has set out its proposed price control settlements for some of the UK's biggest electricity networks (those that transport energy into homes and businesses) which would not only see them spend £17bn to upgrade and maintain Britain's local electricity network, but could also result in energy bills being an average of £12 cheaper per year.

    It's not a lot, granted, but it's certainly a great place to start. The proposals are due to come into effect in April 2015 and will run until 2023, offering eight years of reduced electricity distribution costs.

    The plans began last November, when Western Power Distribution had its price control agreed early after Ofgem judged that its business plan "showed sufficient value for consumers". The remaining five companies (UK Power Networks, Northern Power Grid, SP Energy Networks, SSE Power Distribution and Electricity North West) have since had to amend their strategies to offer good value, and after £2.1bn has been cut from the plans, they've now been added to the price control settlement.

    In addition, Ofgem challenged the companies to improve their customer service and be more proactive in helping vulnerable customers, a challenge which the regulator says has been responded well to. Ofgem has also sharpened targets to help new customers get connected to the network faster, which will hopefully improve the level of service customers receive overall.

    Dermot Nolan, Ofgem chief executive, said: "As energy regulator, a core part of our role is to set price controls for these monopoly network companies. This is the only part of the energy bill Ofgem directly controls and our plans will deliver better customer service and efficient investment at a lower cost for the customer."

    The news came just before British Gas announced a fall in profits over the first half of the year, something that undoubtedly won't upset too many consumers. The 35% drop was largely blamed on the warmer winter and, happily for customers, that also means that their annual bills will be around £90 lower than in 2013 – but this is simply down to them using less energy, not because British Gas reduced prices.

    Mark Todd, director of energyhelpline.com, commented: "Today's news shows that customers are switching off their heating and switching off their custom from British Gas. With such a warm winter, which impacted sales, coupled with a huge loss of customers, it's little wonder that profits are down.

    "The British Gas results show that over 600,000 customers have left over the last year as customers opt for cheaper, smaller suppliers, often with better service ratings. It's now reaping the whirlwind of a huge customer backlash – profits are down, customers are down, their tariffs are uncompetitive and their service levels are below par.

    "With wholesale gas and electricity prices so low and increasing pressure from Ofgem for suppliers to pass on these falling costs to households, British Gas desperately need to give customers the price cut they deserve if they are to stop the customer exodus."

    However, there are concerns that the industry as a whole could actually see their profit margins double over the next year, according to Ofgem's calculations. The regulator estimated that the big six could enjoy profit margins of around 8%, but it's hoped that the referral of these firms to the Competition and Markets Authority (CMA) could start to address some of the inherent issues for the benefit of consumers – ideally resulting in the price cuts necessary.

    In the meantime, why not see if you can find a cheaper deal elsewhere? "If customers want to get a cheap tariff, they are much better off taking matters into their own hands and switching," said Mark. "Over 2 million people have done this since the autumn, often saving around £300 on their bills. The smaller suppliers can offer savings of up to £326 a year today, so why not take a few minutes to switch?"

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