Ofgem under fire for failing to keep energy prices down

In 2013, Ofgem introduced a new price control framework known as RIIO, which was designed to ensure that costs were competitive and profits were not excessive. (Join our Cheap Energy Club to get the cheapest gas and electricity.)

But the Energy and Climate Change Committee says price caps intended to curb the cost of distributing and transmitting gas and electricity are too generous, while performance targets are too low.

At present, network costs account for around 23% of a dual fuel (gas and electricity) bill. They are passed on to consumers by the energy suppliers, which are charged by the network companies for using their transmission and distribution infrastructure.

The committee says there is "clear evidence" that the network companies are making higher profits than expected. The committee says: "This suggests that the targets and incentives set by Ofgem are too low, barriers to market entry are high and that Ofgem needs to monitor RIIO more effectively and to equip RIIO with stronger, corrective measures.

"While we recognise that the new RIIO framework is an improvement on its predecessor, Ofgem has not yet created the conditions for the market to thrive and provide consumers with best value for money."

Committee chairman Tim Yeo also says a warning by Ofgem chief executive Dermot Nolan that it could be eight years before it was clear whether the new system was delivering value for money was "too long for consumers to wait".

'Ofgem must get its act together'

The report also says that a "complex" charging system, which includes a combination of codes and regional charges across the UK, makes it difficult to compare price and performance across the network companies.

The committee adds that it would also like to see greater incentives to connect new and smaller energy generators to the grid to increase market competition.

The group of MPs has called on the Government and Ofgem to conduct an in-depth study into the benefits of replacing the current system with a standard national tariff and has made a number of recommendations to improve the market in the short term, which include changing the 40-day notification period network companies are required to allow for price changes to 15 months.

'Our regulation has delivered value for money'

An Ofgem spokesperson says: "Ofgem notes the committee's views and welcomes debate on the regulation of the energy network and believes our regulation has delivered value for money. 

"Britain's energy network is 17% cheaper in real terms than 25 years ago, £80 billion of investment has been secured, and reliability has improved by 30%.

"We are in the process of implementing a number of the actions the report highlights, including introducing more competition to networks and looking to increase the notification period of network charges."