uk customers
Image credit: Stock

Millions of UK utility customers are owed compensation following overcharges that amount to £24 billion on their energy and water bills, all due to errors made by regulators.

That’s the finding by the country’s watchdog Citizens Advice, and it comes after the body found “misjudgements” by Ofgem and Ofwat on key decisions.

Those “misjudgements” have meant customers have been paying “far too much” for the piping infrastructure that connect energy and water to their residences.

The overcharges comprise £11 billion charged to energy customers between 2004 and 2019 and £13 billion charged to water customers between 2005 and 2019.

This follows a similar finding in 2019 by the watchdog.

Citizen’s Advice says companies in the two sectors have little to no competition to drive down the rates charged to consumers.

Instead, regulators set price controls, dictating how much network companies can charge customers, and these funds are paid through energy and water billing.

The watchdog has determined that the overpayments are in part due to Ofgem and Ofwat making errors in forecasting predicted costs, such as debt, being greater than their actual number, and overestimating the risks utility businesses posed to investors.

The organisation suggests regulators use available market data to determine costs, and adjust their investment risk estimates to avoide consumers overpaying in future.

Several energy and water companies in the UK have taken steps to compensate customers, but Citizens Advice is to participate, and offer customers a voluntary rebate.

Gillian Guy, Chief Executive of Citizens Advice said: “At a time when so many people are struggling to pay their essential bills, regulators need to do more to protect customers from unfair prices. They have started to take steps in the right direction but it is vital they continue to learn from their past mistakes when finalising their next price controls.

“Companies need to play their part in putting this multi-billion-pound blunder right. They must compensate customers where they have been paying over the odds. If they don’t government needs to intervene.”

An Ofgem spokesperson said: “Ofgem remains determined to drive the best deal possible for consumers. Overall, energy network regulation has delivered for consumers, with £100 billion invested, power cuts halved, record customer satisfaction and reduced costs.

“While we do not agree with Citizens Advice’s estimate of excess profits, we welcome their report and recommendations. We will continue to work closely with them and wider stakeholders to apply lessons learnt from previous price controls for the next price control period (RIIO2). Our plans include the lowest ever returns for investors in energy networks which would cut costs for consumers by £6 billion.”

A spokesperson from Ofwat added: “We do not recognise the figures put forward by Citizens Advice or how they are arrived at. The National Audit Office (NAO) examined these issues previously and reported that customers could have overpaid by up to £840m. We took on board the recommendations of the NAO and the Public Accounts Committee and as a result, companies returned millions of pounds to customers.

“We welcome the recommendations of Citizens Advice and look forward to working with them to ensure that customers continue to receive a fair deal.”

This follows a report from the watchdog earlier in May 2019, which found that UK energy network operators need to meet 39 guaranteed standards of service set by Ofgem, which include emergency response, complaints services, and the speed of reconnection in the case of a weather-related outage.

Should these standards not be met, compensation is due to the customer affected, and electricity network operators reportedly paid out just less that £5.4 million in compensation in the last three years, but a further £2.5 million was left unclaimed by customers. Here's the story.