Promised cut to network charges on energy bills will be reclaimed a year
later with interest that could total £2m

By Emily Gosden

Ministers have been accused of “conning” energy consumers over promised
bill cuts after it emerged that a £5 “one-off reduction” in charges by
network companies next year will have to be repaid the year after – with
interest.

The Coalition unveiled plans at the start of December to cut £50 off an
average dual-fuel energy bill.

As part of this, it announced: “Electricity distribution network companies
are willing to take voluntary action to reduce network costs in 2014-15.

“This would allow a one-off reduction of an average of around £5 on
electricity bills, which energy suppliers will be able to pass on to their
customers.”

The Telegraph has learnt that the majority of the electricity networks
companies plan to reclaim that £5 in full in 2015-16.

The money – which is estimated to amount to more than £100m across the
industry – is expected to reclaimed with an interest rate of two per cent,
leaving consumers in total paying about £2m more than they would have
without the change.

Jonathan Reynolds MP, Labour’s shadow energy and climate change minister,
said: “This is a complete and utter con.

“It is deeply cynical for David Cameron to pretend he has cut network
charges when in reality these costs will just have to be paid the following
year with interest. Consumers will not be fooled by this sleight of hand.

“Even after all the changes to the green levies, energy bills are still
rising and the average household will still be paying £70 more for their
energy than last winter.”

The fact that the £5 was a deferral rather than a cut was mentioned only in
the small-print of the government announcement, where it said some
electricity network companies were “voluntarily opting to recover some of
their costs over a longer timeframe”.

A senior energy industry source told the Telegraph: “It is simply moving
money from one year to the next. That wasn’t really made clear when the
statement came out from DECC.”

Of the 14 electricity network companies, only 12 are expected to take part
– and all but one of those who do are seeking the money back in one go the
year after, the source said. Exact plan are yet to be finalised.

Energy regulator Ofgem sets how much the network companies can charge every
five years, based on their spending plans.

Most of the electricity distribution companies were due to raise their
charges significantly next year, in the last year of the current five-year
block, and then cut them significantly in 2015-16 under the new regulatory
period.

Under the plans agreed with government, the charges will rise by £5 less
than expected next year, but fall by £5 less than expected the year after.

A spokesman for regulator Ofgem said: “Most distribution companies are
preparing to bring forward revenue reductions that were planned for 2015-16.

“Distribution companies will be able to recover the appropriate level of
allowed revenues over time, including notional interest costs of about two
per cent per annum.”

The companies would gain no more cash in the long-run, the spokesman added.

“The interest costs companies will be able to recover will be no more than
the interest costs that companies will incur as a result of deferring
revenue in this way.”


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