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Regulator fines UK power companies record amount for missing energy saving targets

28 November 2014

Two power generation companies are to pay penalties totalling £39m after failing to meet energy saving targets for low-income households. UK energy sector regulator Ofgem has hit North Yorkshire-based Drax with a £28m penalty, the largest ever handed down by the regulator, while InterGen faces a fine of £11m.

Drax will pay up to £20m to consumers who missed out on the savings, with a further £8m to be paid partly as a fine and partly to consumers.

Ofgem found that Drax met only 37% of its obligations under the government’s community energy saving programme (Cesp). Generators and energy suppliers were required to provide energy-saving measures to households in low-income areas to cut carbon emissions, reduce bills and keep homes warm.

The companies failed to meet targets to insulate homes under two energy efficiency schemes that ran until the end of 2012. Similar decisions by the regulator on British Gas, SSE, Scottish Power, and GDF/Suez are still pending and are likely to be announced in the coming weeks.
Ofgem’s previous biggest penalty was a £15m fine for National Grid in 2010 for anti-competitive metering.

The penalties were levied for failing to meet targets under the Community Energy Saving Programme (CESP), part of the government's Home Energy Saving Programme. CESP was designed to help reduce bills for many thousands of customers living in low income areas by helping them with loft and wall insulation, and new boilers.

Dorothy Thompson, chief Executive of Drax, said: "We are deeply disappointed with the magnitude of the fine. However, we believe it is in our shareholders' interests to settle this matter and, as the nation's single largest power provider, focus on delivering a reliable supply of electricity this winter.

"We are pleased to be working with National Energy Action to develop a package of measures which would benefit vulnerable energy consumers."

But she added: "We believe the design of the CESP was flawed and significant problems were encountered with scheme delivery, the CESP market and the complex arrangements."
However, Ofgem said Drax's failing was considerable. Sarah Harrison, senior partner in charge of enforcement at Ofgem, said: "Drax missed its target by a clear margin, disadvantaging several thousand households in some of the most deprived areas in Britain.

"Not only are these consumers missing out on energy efficiency measures that would help keep their homes warm, they also face higher energy bills as a result. Today's agreement to pay £28m reflects the seriousness of the consequences of these failings for consumers."

In a separate statement, Harrison said: "InterGen missed its target by a clear margin, disadvantaging many low-income households. The £11 million payment reflects the seriousness of these failings and means InterGen has not gained through its non-compliance."

InterGen met only 6.4% of its Cesp obligations by the deadline but took steps to make up the shortfall and ended up achieving 61% of its target. The Edinburgh-based company is owned by the Ontario Teachers' Pension Plan and China's Huaneng Group.

Ofgem said it was still deciding how to distribute the money from the penalties, although it was likely to be via energy saving schemes and customer redress programmes.

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