CONSUMERS have been paying too much for their electricity for seven years because regulator Ofgem set the bar too low for networks, a watchdog has found.

The National Audit Office (NAO) said Ofgem had made targets too easy for network companies and over-estimated the returns needed to bring investment to the sector.

That pushed up electricity bills for households and businesses.

The NAO did not specify how much more households had paid, but just one aspect of the price control has cost an estimated £800 million too much. Around one third of the average annual energy bill pays for the electricity and gas households use and around one quarter – more than £250 a year – pays for the gas and electricity networks.

The National:

Complex rules over power generation and distribution give networks an allowance to run and invest in their systems.

If they spend less, they can keep half of the savings and return half to customers.

READ MORE: Citizens Advice Scotland in new push on power bills over fuel poverty

Price controls were brought in to reassure investors in 2013 and energy network investors have seen returns of 9%, compared with between 5% and 6% at other UK companies.

Shareholders were allowed to claim around 1.5% of this as a reward for smashing through targets to bring down power cuts. However, the NAO said that Ofgem had set the targets so far in advance that the networks had reached many of them before the regulation period even started – piling an added £800m on to customers’ bills.

Ofgem has already indicated it will begin a clamp down, with its network price controls director Akshay Kaul saying: “Our tough new round of price controls will lower returns to save consumers money, whilst pushing companies to go further on decarbonisation and ensuring we retain one of the world’s most reliable energy systems.”

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Dame Gillian Guy of Citizens Advice said the report proves “energy networks have enjoyed a major windfall at the expense of consumers”.

She went on: “Ofgem has made good progress towards a tougher settlement next time around.

“The regulator must hold its nerve, resist the efforts of networks to water down its proposals and deliver a price control that works for consumers.”

Meanwhile, power player OVO Energy is to pay £8.9m to Ofgem after some customers were overcharged and given inaccurate information.

The body said OVO will make the “voluntary redress” payment over trouble caused by problems on its IT systems.

It sent inaccurate annual statements to more than 500,000 people between July 2015 and February last year.

Customers were also charged incorrectly, with some overpaying and others underpaying, after the supplier under-estimated consumption levels over one winter.

The National:

Ofgem said OVO had been aware of the issues but “did not self-report the majority” of them, and was “slow” to correct the issues.

OVO now accepts and has corrected the breaches, including refunding its overcharged customers, and has written-off all amounts related to customers who had been charged at the wrong rates.

Meanwhile, rival supplier Utility Warehouse has been ordered to pay out £650,000 after it overcharged customers due to a systems error.

READ MORE: National energy partnership raising cash to fight fuel poverty

The National launched a first-of-its-kind partnership with Scotland’s Together Energy earlier this month.

As much as £60 will be donated to tackle fuel poverty for every new sign-up to the Together Energy Green Brexit Protect 25 Month deal during the first month.

A part of the proceeds will then be donated each month for the length of each contract.

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