Ed Miliband has been urged to cut household energy bills by £200 with a cap on “pylon levy” charges imposed by electricity distribution companies.
The Energy Secretary is being encouraged to launch a review of the profits made by power distribution networks, which manage the cables that connect homes to the grid. In contrast to heavily regulated suppliers, their operating profit margins can be as high as 42pc.
Dale Vince, the Labour donor and founder of energy business Ecotricity, suggested that trimming the companies’ profits to a lower level could cut £6bn from standing charges – saving customers an average £200.
Power distribution networks are a little known component of the electricity system. Britain is divided into eight distribution regions with a single company delivering power from the grid to homes and businesses. It means each is a regional monopoly free of competition.
Mr Vince is writing to Mr Miliband and Chancellor Rachel Reeves to demand change.
Describing the charges as a “pylon levy”, he said: “These distribution companies are monopolies, regulated by Ofgem, which also sets the energy price cap but which allows [the distribution companies] a 40pc profit margin on average.
“I find this incredible at a time when suppliers like Ecotricity are allowed 1.5pc profit and when we’re all agonising over the size of retail energy bills.
“It’s also the responsibility of suppliers to pay the distribution companies even when customers haven’t paid us … these guys are just having a field day. Why does the regulator allow that when we’re trying to get bills down?”
Mr Vince’s comments, backed by other energy suppliers, follow research published in July by the consultancy IbisWorld revealing the 10 industries with the UK’s highest profit margins.
Banking was top at nearly 50pc but electricity distribution came fourth at 42pc. IbisWorld estimated the industry’s revenue at £8.9bn this financial year, with profits of £3.7bn.
The industry argues that operating profit is an unfair measure because it is capital-intensive and needs to generate cash to invest in its systems.
Mr Vince’s stance was backed by the End Fuel Poverty Coalition. Its energy firm profits tracker system suggests distribution company charges have cost UK homes an average of £1,100 since the start of the energy crisis in 2022.
Simon Francis, coordinator of the End Fuel Poverty Coalition, said: “The excesses of the energy industry profits don’t just extend to the firms who generate our power. In fact, billions in profits have been made by the networks who run the wires and pipes that take electricity and gas to our homes.
“If the Government is serious about asking those with the broadest shoulders to help fill a financial black hole, it should look again at the excess profits in the energy industry.”
The UK’s electricity transmission system has two main components.
National Grid, Scottish Power and SSE manage the high voltage “grid” that carries electricity over the long distances from power plants to the regions where it is needed. Eight regional distribution companies then take that power from the grid and deliver it to homes and businesses across Britain.
SSE runs two of these, Scottish Power runs two more and National Grid runs a fifth. The North East is covered by Northern Powergrid and the North West by Electricity North West.
The largest by customers is UK Power Networks, serving 8.3m homes and businesses across London, the South East and East of England. It is owned by CK Infrastructure, a Chinese company.
A spokesman for the Energy Networks Association, which represents the industry, disputed the use of company operating profits as a way of assessing their performance.
He argued that because the industry was highly capital-intensive, a better measure would be return on capital – which averaged around 5pc.
The spokesman said: “Network companies aren’t making excessive profits. Their returns are regulated by Ofgem and average around 5pc. Running, maintaining, and upgrading the electricity network costs about 48p per day on your energy bill.
“This supports 26,000 jobs, 1,500 apprenticeships – with 700 more being recruited this year, and maintains over 500,000 miles of wires and cables.
“Additionally, network operators are investing more than £30bn in the coming years to ensure a reliable energy grid.”
A Department for Energy Security and Net Zero spokesman said the profits of energy suppliers and distributors were regulated by Ofgem – which is carrying out a review of the standing charges.
Ofgem did not comment directly on Mr Vince’s demands but pointed to a previous statement, which said: “Network companies, including distribution network operators, are funded through the network price controls which Ofgem allocates.
“Funding includes allowances for replacement, repair and refurbishment to network infrastructure.
“Funding, which is recouped via energy bills, is regularly reviewed to ensure levels are appropriate for the work required to ensure the maintenance and development of safe and reliable energy networks.”
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