A new research study by Citizens Advice has concluded that regulators have allowed water, energy, broadband and telephone networks to overcharge customers by £24.1 billion over the past fifteen years.

The largest amount is attributable to the water sector in England and Wales, over the period 2005-2019, according to the research. The breakdown is £13 billion for water providers, £11 billion for energy networks and £100 million for broadband and telephone networks.

The charity is now calling for companies to return some of this to customers through a rebate on their bills and for regulators to stop this happening again.

The research follows its 2017 report, which found Ofgem made errors in setting price controls for energy networks, resulting in energy customers being overcharged £7.5 billion over an 8-year period. After the charity highlighted its concerns, three energy network companies returned some money to consumers.

According to Citizens Advice, this was “the tip of the iceberg” - the same errors have been made by Ofgem over a much longer period and by regulators in other markets including water, broadband and phone networks over the past 15 years.

The research finds that misjudgements by the regulators (Ofgem, Ofwat and Ofcom) on key decisions have meant customers have been paying far too much for energy, broadband, phones and water.

Citizens Advice said:

“These sectors include companies that face little, or no, competition to drive down the price they can charge their customers. Instead, regulators tell the network companies how much they can charge by setting a price control. Customers then pay the charges for these networks as part of their water, energy, broadband and phone bills.”

The charity says that overpayments partly occurred because regulators made forecasting errors. They predicted that costs, such as debt, would be higher than they in fact were. Regulators also over-estimated how risky these businesses were for investors.

Citizens Advice is recommending that, instead of forecasting costs, regulators should use available market data to calculate costs and adjust their estimates of investment risk. This would avoid consumers paying too much in future, the charity says.

While several energy and water companies have taken steps to return some money to customers, Citizens Advice is now calling for all firms to provide a voluntary rebate to their customers. If they don’t, it says the government should step in.

Gillian Guy, Chief Executive of Citizens Advice, said:

“Regulator error has meant customers have been charged too much by energy, broadband and phone networks for far too long.

“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.”

The research follows Citizens Advice Missing Billions report on energy networks from July 2017. That report focussed solely on energy over an 8-year period. After the charity highlighted the concerns in the energy sector, three companies (SGN, Western Power and Scottish and Southern Electricity Networks) returned £287 million to customers.

Previously in the water industry, in 2013, Ofwat called on firms to recognise the difficulties that customers were facing as a consequence of the financial crash. Amid planned bill increases, some firms voluntarily didn’t collect revenue from customers, reducing bills by £435m.

Ofwat have since indicated substantially lower returns for investors from 2020 for the PR19 price control. In April, Ofwat announced a deal with three water companies that could see some water bills fall by as much as £70 a year for 8 million households.  

Last week Ofgem confirmed its methodology for calculating their next set of price controls, including a lower return on equity of 4.3% and a lower allowed return on debt. This would lead to customers bills being reduced by £6 billion over the five years of the RIIO-2 price control (staring in 2021) when compared to RIIO-1.

The latest research covers specific time periods for each sector, due to necessary data being missing for other periods. This research covers 2004-2019 for energy; 2005-2019 for water and 2014-2018 for broadband & telephone networks.