Unite asks Ofgem to limit the profits of energy distributors

Companies responsible for bringing electricity to UK homes have been accused of “profit making” by a leading union calling on the energy regulator to cap their profits.

Sharon Graham, Unite’s general secretary, has written to Ofgem asking it to clamp down on “excess” profits generated by regional electricity distribution network operators (DNOs), which made £15.8bn in profit last year. passed and have paid £3.6. bn 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 in ransom for too long and too long” and called for a recent inquiry into how much they could charge service providers. Energy. and ultimately consumers, to be reopened.

Graham wants Ofgem, which has been condemned for its handling of the energy crisis, to review its policies to tighten controls on DNOs. “It’s time to set a clear cap on profits to help consumers trust that their energy bills are fair and not simply a vehicle to speculate with energy grid owners,” he said.

Research by Common Wealth, a think tank, shows that DNOs have higher profit margins than any other sector in the UK, and expects traders to post profit margins of more than 50% by 2022. The group of experts argues that consumers are paying for privatized monopolies to reward their investors.

The government has cut profits for North Sea oil and gas producers and introduced a tax on “excess returns” made by electricity generators, including wind farms and nuclear power plants.

However, the profits of the DNOs, which transport energy but do not sell it, have not been on the political agenda. Its profits have not been inflated by high wholesale gas prices, but charges to consumers through grid costs have been rising.

Ofgem sets price controls on monopoly revenue for five-year periods to ensure companies operate efficient networks and are incentivized to invest in improving them.

In 2019, the regulator acknowledged that the cost of streaming to consumers was “higher than it needed to be” and that profit margins were “at the high end of our expectations.” Average households paid £214.35 for gas and electricity distribution in 2021, he said.

The current period of network price controls ends this April, and the next five-year period begins after that. Ofgem is due to make its final pricing determinations on November 30 after an industry consultation, which began before the energy crisis.

In his letter to Ofgem chief executive Jonathan Brearley, Graham called on the regulator to reopen consultation.

As part of his call for a profit cap, he cited earnings from UK Power Networks (UKPN), which distributes power to 8.3 million homes and businesses in London, east and south-east England. Common Wealth’s analysis shows the company has made £2.4bn in profit over the past four years.

The UK’s largest electricity distributor, 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 price concerns.

Over the past four years, Northern Powergrid, which has 3.9m customers in the North East of England and Yorkshire, has made £1bn of profit, and Electricity North West has made £323m, delivering £212m sterling to shareholders. Northern Powergrid did not pay dividends during the period, but did in 2015 (£100m) and 2017 (£50m).

In his letter, Graham said: “Ofgem is a regulator that does not regulate. It is time for that to change. How long must the public pay for the speculation of companies like UK Power Networks? It is time to disconnect the energy speculators”.

A UKPN spokesman said its cost to the customer was £98 on average, “one of the lowest of any UK electricity distributor and a drop as a percentage of the total electricity bill by a proposed 15% in terms real during the period 2023-28. ”. The company has invested £6.4bn over 11 years in networks, he said.

Ofgem said: “We do not believe it is in the interest of consumers to delay the implementation of price controls.”

A spokesman for the Energy Networks Association, which represents power network operators, said Unite’s figures were “misleading” and that investment returns accurately reflected profitability. “Ofgem allows network companies to earn around 5% of their investments and the suggested figures do not reflect the costs associated with these essential investments,” he said.

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