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Customers of Western Power Distribution could have to pay an extra £860 million over the next eight years because of a mistake by Ofgem, MPs said today.
The Energy and Climate Change (ECC) select committee’s report into network costs raised the question of whether a “miscalculation” by the regulator has led to WPD’s customers effectively being overcharged by £860 million. WPD’s financial settlement for the next price control period, RIIO-ED1 was fast tracked under a new system in May 2014. By the time the regulator made its determinations on the other networks, its view of efficient costs had changed.
The report said: “There could be an £860 million difference between Western Power Distribution’s fast track RIIO-ED1 assessment approved by Ofgem and Ofgem’s subsequent view of efficient costs in October 2014. If this is an Ofgem miscalculation caused by fast tracking, WPD customers may have to fund the £860 million difference over the eight year price control period.”
Ofgem announced at the end of 2013 that WPD was the only one of the networks to have its business plan fast tracked. With a total settlement of round £7 billion, WPD will cut its rates by an average of 11.6 per cent in 2015/16, or around £11.30 a household in 2012/13 prices. They will then rise by an average of 90p a year until 2023.
An Ofgem spokesman said: “We consider the benefits of fast-tracking (better initial business plans, further £700 million improvement across the sector between fast- and slow-track, significantly better data for benchmarking DNOs at slow-track) are greater than the benefits available to WPD. We believe our fast-track process has unlocked substantial value for consumers that would not have been possible otherwise.”
WPD declined to comment.
The ECC report accused Ofgem of failing to deliver value for money in the regulation of networks, and called for an independent audit of price controls.
Committee chairman Tim Yeo said: “Ofgem must get its act together and scrutinise these near monopolies more effectively.”
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