Households to be protected from ‘excessive’ electricity bill profits under new Ofgem rules
Ofgem’s new rules take effect from October 26
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Households will get extra protection from artificially inflated electricity bills preventing generators from attempting to make excessive profits.
Energy regulator Ofgem has announced new rules to take effect this winter which stop generators from manipulating supply and demand on Britain’s electricity transmission network.
The Inflexible Offers Licence Condition (IOLC) bans a practice where electricity generators schedule a halt to generating early in the afternoon which, due to plant shutdown times, would mean they were switched off for the crucial evening peak in demand.
Previously, firms have then offered to resume generating later in the day but at a significantly higher price.
Ofgem launched an investigation last year amid concerns some generators were taking advantage of existing rules
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Eleanor Warburton, Ofgem acting director for energy systems management and security, said: “This new licence condition shows Ofgem will not tolerate electricity generators attempting to take advantage of the balancing mechanism system to make excessive profits through inflexible generation.
“We believe the new licence condition strikes the right balance between protecting consumers and ensuring they pay a fair price for their energy while also enabling a competitive electricity market that provides fair returns for generators.
“We’ll be monitoring the effectiveness of it to ensure it’s doing what it was designed to do.”
The regulator launched an investigation last year amid concerns some generators were taking advantage of existing rules.
It came after their balancing cost tripled to more than £1.5billion between November 2021 and February 2022, compared to a winter average of just under £500million between 1027 and 2020.
The daily costs, ultimately paid by consumers, peaked above £60million on November 24, 2021.
It drove up the operator’s overall balancing costs to £3.1billion that financial year.
Ofgem’s new rules apply to any electricity generators with plant shutdown times of more than one hour, and take effect from October 26.
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Energy regulator Ofgem has announced new rules will take effect this winter
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Any generators found to break the rules from that date could be fined up to 10 per cent of turnover.
Ofgem announced new compensation levels ahead of winter storm season today.
The regulator has increased the storm compensation cap from £700 to £2,000.
Akshay Kaul, Director General of Infrastructure for Ofgem, said: “It’s unacceptable that thousands of households were left without power in freezing conditions for a prolonged period during Storm Arwen, often with poor information about when their power would be restored.
"Many also found it hard to get the compensation they were entitled to afterwards, and that’s why we’ve put tough new rules in place to make sure network companies prepare better for severe weather; customers get accurate and honest information about power cuts in their area; and those who are off power in bad weather are rapidly and fairly compensated.
“Lessons have been learnt by the industry following our review into Storm Arwen, but the frequency of extreme weather events is only set to increase, so we need to make sure network services are resilient.
“Network operators and suppliers should get ready for the coming winter. We will not hesitate to hold them to account if they fall short of the standards customers have a right to expect.”