‘Scrap Ofgem’ if it can’t curb DNOs’ profits, say MPs

Ofgem should be scrapped unless it uses next year’s half way review of the RIIO to curb the distribution network operators’ (DNOs) profits, according to a leading Parliamentary critic of the energy utilities.

John Penrose MP sent a letter to Ofgem last week, signed by 33 of his fellow backbenchers, calling on the regulator to review the RIIO in 2019.

The letter accuses the DNOs, which it says run an ‘extremely safe, slow-paced, low risk … monopoly’, of making ‘consistently higher’ returns than firms in riskier parts of the economy and the same sector.

“They are all making excellent returns, all the time, at the expense of consumers who have no option but to use their services.”

The letter says that the regulator has yet to explore lowering the revenues DNOs are allowed to make or returning profits to consumers by re-opening the RIIO control when it reaches its four- year mark in 2019.

In his reply, Ofgem CEO Dermot Nolan writes that such short term changes will lead to a ‘significant loss of confidence’ amongst investors in the DNOs which would in turn increase their cost of finance and ultimately lead to higher consumer bills.

And he writes that the current price controls are delivering for customers, reflected in a 5 per cent drop in the network’s running costs for consumers.

Responding to the letter from Nolan, Penrose said: “They’re saying it’s OK for these monopoly energy distribution network operators to make absurdly large profits – paid out of the pockets of hard-working energy customers – for at least another six years.

“If Ofgem can’t see why it’s wrong to let them go on getting fat at energy bill-payers’ expense, what’s the point of having them at all? They’ll have to be scrapped and replaced with a proper cross-sector regulator that isn’t afraid to stick up for consumers properly.

“Alternatively they can wake up, smell the coffee and use the powers Parliament has already given them to force companies to return excessive profits to consumers.”

The RIIO, which governs the returns DNOs are allowed to make, can be reviewed at pre-planned points to determine whether allowances should be adjusted due to changed circumstances.

Penrose was one of the leading members of a cross-party House of Commons campaign last year calling for a cap on energy prices.

Yesterday, in a response to Penrose in the House of Commons, business and energy secretary of state Greg Clark urged Ofgem to adopt a ‘tougher’ stance on DNOs’ profits.