‘Rampant profiteering’: Unite asks Ofgem to cap power distributors’ profits
The companies responsible for bringing electricity to UK homes have been accused of “rampant profiteering” by a leading union that is calling for the energy regulator to cap their earnings.
Sharon Graham, general secretary of Unite, has written to Ofgem to ask it to clamp down on “excessive” profits generated by regional electricity distribution network operators (DNOs), which raked in £15.8bn in profits last year and have paid out £3.6bn in dividends between 2017 and 2021.
In the letter to Ofgem, which has been seen by the Guardian, Graham said the six operators have “been holding the public to ransom for too much and for too long” and called for a recent consultation on the amount they could charge energy suppliers, and ultimately consumers, to be reopened.
Graham wants Ofgem, which has been condemned for its handling of the energy crisis, to revise its policies to tighten the controls on DNOs. “It is time to set a clear cap on profits to help give consumers confidence that their energy bills are fair and not simply a vehicle for profiteering energy network owners,” she said.
Research by Common Wealth, a thinktank, shows that DNOs have higher profit margins than any other sector in the UK, and expects operators to register profit margins of more than 50% in 2022. The thinktank argues that consumers are paying for privatised monopolies to reward their investors.
The government has curbed profits on North Sea oil and gas producers and introduced a levy on “excess returns” made by electricity generators including windfarms and nuclear power plants.
However, the profits of DNOs – which carry the energy but do not sell it – have not been on the political agenda. Their earnings have not been inflated by high wholesale gas prices, but charges to consumers through network costs have been rising.
Ofgem sets price controls on the monopolies’ revenues for five-year periods to ensure that companies run efficient networks and are incentivised to invest in improving them.
In 2019, the regulator conceded that the cost to consumers of transmission were “higher than they needed to be” and that profit margins were “towards the higher end of our expectations”. Average households paid £214.35 for gas and electricity distribution in 2021, it said.
The current network price controls period ends this April, with the next five-year period beginning after that. Ofgem is due to make its final determinations on the pricing on 30 November after a consultation with the industry, which began before the energy crisis.
In her letter to Ofgem’s chief executive, Jonathan Brearley, Graham asked for the regulator to reopen the consultation.
As part of her call for an earnings cap, she cited the profits of UK Power Networks (UKPN), which distributes power to 8.3m homes and businesses across London, the east and south-east of England. Common Wealth analysis shows the company has made £2.4bn in profits over the past four years.
The UK’s largest electricity distributor, which is owned by CK Hutchison, the Hong Kong-based holding company that also owns the port of Felixstowe, has paid out £1bn in dividends to shareholders over the same period. CK bought UKPN for £5.5bn in 2010 and a £15bn sale of the DNO to a consortium collapsed in the summer amid concerns over the price.
In the past four years, Northern Powergrid, which has 3.9 million customers in north-east England and Yorkshire, made £1bn in profit, and Electricity North West made £323m, handing out £212m to shareholders. Northern Powergrid did not pay a dividend during the period, but did in 2015 (£100m) and in 2017 (£50m).
In her letter, Graham said: “Ofgem is a regulator that doesn’t regulate. Time for that to change. How long must the public pay for profiteering from the likes of UK Power Networks? It’s time to pull the plug on the energy profiteers.”
A spokesperson for UKPN said its cost to the customer was £98 on average, “one of the lowest of any UK electricity distributor and falling as a percentage of the overall electricity bill by a proposed 15% in real terms over the period 2023-28”. The company has invested £6.4bn over 11 years in networks, it said.
Ofgem said: “We do not believe that it would be in consumers’ interests to delay the implementation of the price control.”
A spokesperson for Energy Networks Association, which represents energy network operators, claimed that Unite’s figures were “misleading” and that investment returns were an accurate reflection of profitability. “The network companies are allowed, by Ofgem, to earn around 5% on their investments and the figures being suggested do not reflect the costs associated with these essential investments,” he said.
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