Perth-headquartered energy giant SSE fined £9.8m by Ofgem for overcharging
Ofgem has revealed that a detailed investigation found that the FTSE 100 company's generation arm overcharged the National Grid Electricity System Operator during a time of so-called transmission constraint, which happen when there is not enough electricity network capacity to transport power out of an area in which local generation outstrips demand, for example.
The electricity system operator takes action to manage flows across the network to increase and decrease the amount of electricity produced by different generators. However, given that it only has limited alternatives available to it in these situations, there are risks that generators can exploit their position by increasing prices to reduce output, and Ofgem puts rules in place to prevent this.
Ofgem's probe, which was launched in October 2021, found that SSE – which is led by chief executive Alistair Phillips-Davies – made the bid prices it charged the electricity system operator to lower output from the Foyers pumped storage power station in North Ayrshire, "significantly more expensive", including in periods of transmission constraint.
The regulator said that, while there was no evidence to suggest the actions were deliberate, it found that SSE breached the rules in place. It warned that the pricing actions would ultimately increase costs for consumers.
Cathryn Scott, director of enforcement and emerging issues at Ofgem, said: "Protecting consumers is a priority for Ofgem, and we will continue to monitor the wholesale energy markets in Great Britain and ensure their integrity on behalf of energy users.
"This enforcement action sends another strong signal to all generators that they must put in place controls to ensure that their bid prices are set in a way that ensures that they do not obtain excessive benefits during transmission constraint periods. If they fail to do so, they will face significant consequences."
SSE has since pledged to put in place a new pricing system designed to properly reflect the costs and benefits of reducing its generation at Foyers. Ofgem added that SSE's fine was reduced from £11.6m as the company settled the investigation early.
The energy firm last month outlined plans to invest up to £40 billion over the next decade, creating more than 1,000 green jobs a year.
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