According to British Gas, UK households will be overcharged by £4.2b on gas and electricity bills if energy regulator Ofgem’s suggested pricing reforms are implemented.
The supplier has asked for a review of energy network distribution costs and has stated that if the changes being considered by Ofgem are implemented, energy price rises may be inevitable.
Network companies are responsible for the cables and pipes which connect homes to the national grid. Energy providers pass these distribution costs on to consumers.
Ofgem has refuted the charges and stated that pricing is subject to strict controls.
Higher network charges = energy price hikes
Network costs currently make up approximately £288, more than a fifth, of the average household’s annual energy bill, but will continue to rise. British Gas estimates that the new measures would see a typical annual bill increase by £10.41 per year.
The energy supplier has also stated that Ofgem has allowed network companies to keep additional gains and even profits obtained by double-charging. In fact, according to British Gas, networks owe households a one-off £13 refund.
British Gas is one of the energy companies which raised its prices over the winter period. One of the reasons given for the higher cost was an increase in distribution charges.
British Gas: ‘Consumers are paying more than necessary’
As part of a submission to the energy select committee, British Gas wrote: “British Gas believes that closer scrutiny of this area of the bill, and of how network costs can be controlled, is long overdue, and that greater pressure can be brought to bear to reduce these costs for the benefit of consumer.
“We believe the levels to which incentives and targets are set do not provide the right level of pressures to ensure that costs passed through to consumers are minimised.
“We believe that allowances are set at overly generous levels and consumers are paying more than necessary regardless of efficiency savings.”
Ofgem denies lack of price controls
Speaking to the Telegraph, a spokesperson for Ofgem refuted British Gas’ claims that consumers would be overcharged to the tune of £4.2bn.
“Ofgem takes a tough approach to price controls and since privatisation the cost of distribution charges have fallen by 50 per cent and GB has some of the lowest network costs in Europe. Reliability of the network has also improved by a third.”
The energy regulator added that five of the six energy network companies’ price proposals were initially refused as they were deemed too expensive.
A spokesperson for the Energy Networks Association agreed and said: “Network costs account for around one fifth of the average household bill and are subject to rigorous and robust regulation by Ofgem.
“Current business plans show costs levelling off into the next decade despite significant investment in infrastructure to support economic growth, new homes and business, and the UK’s low carbon future.”