SSE to pay out almost £10m over excessive ESO payments

SSE is facing a penalty of almost £10 million after it secured excessive payments from National Grid Electricity System Operator (NGESO) during periods of transmission constraint.

The proposed £9.78 million payout relates to an investigation by Ofgem into SSE Generation’s Foyers pumped storage power station, located on the banks of Loch Ness in Northern Scotland.

Transmission constraint is managed by the ESO which typically only has a limited number of alternatives available to it. This, Ofgem said, creates a risk that generators could exploit their position by charging the ESO excessive prices to reduce their output which is prohibited by the Transmission Constraint Licence Condition (TCLC).

The regulator’s investigation found that in May 2020 SSE took the decision to make the bid prices it charged the ESO to reduce Foyers’ output “significantly more expensive”. This included during periods of transmission constraint.

Ofgem said the change was introduced by SSE to bring Foyers in line with what it believed was the market practice of other pumped storage operators, as well as to increase profit.

Its revised prices however were expensive relative to several relevant comparators, and were not compliant with the TCLC.

“The bids submitted resulted in higher balancing charges, ultimately increasing costs for consumers,” the regulator added.

Ofgem stressed that it had not seen any evidence which suggests that the breach was deliberate. However, it added, it considers that it should have been clear to SSE and its senior management that the company’s revised approach carried a “significant risk of breaching the TCLC”.

Following the investigation SSE has committed to bring in a new pricing methodology to properly reflect the costs and benefits to the company of reducing its generation at Foyers.

By settling the investigation early, SSE has qualified for a reduced fine compared to the £11.58 million it would otherwise have been required to pay.

Cathryn Scott, director of enforcement and emerging issues at Ofgem, said: “Protecting consumers is a priority for Ofgem, and we will continue to monitor the wholesale energy markets in Great Britain and ensure their integrity on behalf of energy users.

“This enforcement action sends another strong signal to all generators that they must put in place controls to ensure that their bid prices are set in a way that ensures that they do not obtain excessive benefits during transmission constraint periods. If they fail to do so, they will face significant consequences.”

Responding to the investigation, a spokesperson for SSE said: “We aim to comply with regulations at all times and believed we were doing so in this case. We co-operated fully with the investigation.

“Following the investigation, we are updating our relevant procedures accordingly.”