Citizens Advice: regulator mistakes on risk levels have left customers out of pocket

Citizens Advice says regulators’ poor assessment of the risk of operating utility networks, and the resulting overestimate of the cost of finance, have meant water, energy, broadband and telephone networks were free to step up customer charges.

The watchdog says misjudgements by Ofgem, Ofwat and Ofcom on key decisions have raised costs for customers by £24.1 billion over the past fifteen years (£11 billion in energy, £13 billion in water and £100 milion in telecoms). It says 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.

Responding to the claim, 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.”

Further reading

Ofgem’s RIIO2 proposal on cost of capital: the industry responds

Citizens Advice: Ofgem should pursue potential £4.1 billion network savings by rethinking ‘cost of equity’ calculation

Ofgem promises to get tough on networks as it consults on changes to price review framework

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