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Energy companies have overcharged households and businesses up to £600 million   by manipulating the electricity market, ministers have said.

By , Political Correspondent 10:00PM BST 21 Aug 2012

The Government believes companies have been “profiting unfairly at the expense   of [the] consumer” by overloading the national grid with electricity.

They are then able to claim “unduly high” compensation payments to switch   their wind farms and power plants off when the system becomes too full.

Official estimates suggest that some companies have been over-claiming for up   to five years at a cost of up to £125 million per year – the equivalent of   £25 for every household in Britain.

Two of Britain’s biggest energy companies — Scottish Power and SSE, which   supply energy to six million homes — have been investigated for alleged   abuses by Ofgem, the regulator.

All bill-payers in Britain have to bear these extra costs, regardless of who   their energy supplier is.

The scale of the alleged abuses comes after energy companies announced large   profits at a time when households are struggling to pay record bills.

Charles Hendry, the energy minister, is planning to ban such “exploitative   behaviour” by the owners of wind farms and gas and coal plants, after   warnings from Ofgem that compensation payments are rising out of control.

New rules will go to consultation this autumn. They would force firms to   surrender 10 per cent of turnover if they charge excessive compensation in   future.

John Robertson, an MP on the energy committee, will write to the Department   for Energy and Climate Change (DECC) demanding a full inquiry.

“This is a lot of money and consumers are having to pay for it,” he said.   “There has to be some kind of retribution. If this has been happening, it is   shocking and must be investigated.”

In 2009, Ofgem dropped the investigation into Scottish Power and SSE, the   owner of Southern Electric, after concluding that the chances of a   successful prosecution were “low”. The companies strongly deny breaking any   rules.

However, the regulator still believes that some of Britain’s dozens of power   companies have been able to manipulate the system for years without penalty.

According to Ofgem, the level of compensation payments has risen sharply over   the past few years from £84 million in 2005 to around £325 million last   year.

The problem has been made worse by vast numbers of new wind farms in Scotland,   where the grid is regularly unable to cope.

Last year, some of the biggest compensation payments in the wind market went   to Scottish Power, SSE and RWE npower.

Ofgem says power firms are able to “exacerbate or create” too much electricity   for the grid to cope with in areas where capacity is limited, such as the   border between England and Scotland. The power plants and wind farms are   then able to claim compensation — constraint payments — for having to switch   off their plants when the network becomes “unbalanced”.

Officials estimate the proposed ban on “exploitative behaviour” will reduce   compensation levels by £300 million over the next five years. Energy UK, the   body representing Britain’s energy firms, said: “Generating companies have   contracts to fulfil and being ‘constrained off’ the system and unable to   supply their customers can prove very expensive to them.

“That’s why they have to bid for what seem to be significant payments to be   ‘switched off’. In the long run, the answer to these issues will be more   investment in the network.” On Tuesday night, energy companies said they   always act within the rules.

A spokesman for SSE said: “We have been working with the DECC throughout the   consultation period and are confident that we have always been and will   continue to operate within the given industry framework.”

A spokesman for ScottishPower said: “We’re looking forward to seeing the   guidelines from Ofgem and don’t envisage having to make significant changes   to what we’re doing.”

British Gas, E. ON, EDF and npower did not return requests for comment.

The DECC says constraint payments only add £4 per year to household energy   bills, most of which is legitimate. The rest is footed by businesses, which   will ultimately pass their costs on to consumers.

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