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Ofgem has imposed a hefty £9.78m penalty on SSE Generation for securing excessive payments from the UK’s electricity system operator, which was in breach of its licence and raised costs for customers.
The watchdog confirmed the penalty will be paid into its voluntary redress fund, a support kitty for vulnerable households, after first proposing the fine last month.
It determined that the company gained excessive payments from the ESO during periods of what is known as ‘transmission constraint.’
This is when there is either shortfalls or excesses in power, requiring ESO to pay generators to turn off or power on generators to maintain balanced supplies.
Excessive prices are curbed by the terms of the transmission constraint licence condition (TCLC).
In October 2021, Ofgem opened an investigation into SSE’s compliance with the TCLC in relation to its Foyers pumped storage power station, which is located in Northern Scotland and regularly operates in transmission constraint periods.
Ofgem found that in May 2020, SSE decided to make the bid prices it charged the ESO to reduce Foyers’ output significantly more expensive – including in periods of transmission constraint.
This change was made to bring Foyers in line with what it believed was the market practice of other pumped storage operators, and to increase profit.
Ofgem has not seen any evidence that SSE changed its pricing strategy for Foyers knowing its revised strategy would breach the TCLC.
However, the regulator believed it should have been clear to SSE’s senior management that its revised approach carried a significant risk of breaching the TCLC.
SSE has committed to put in place a new pricing methodology designed to properly reflect the costs and benefits of reducing its generation at Foyers.
It also expressed a willingness to settle the case by concluding the investigation early.
This meant the company has qualified for a discount compared to the £11.58m it would otherwise have been required to pay.
“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”, said Cathryn Scott, director of enforcement and emerging issues at Ofgem.
“If they fail to do so, they will face significant consequences.”
A spokesperson for SSE said: “We aim to comply with regulations at all times and believed we were doing so in this case. We co-operated fully with the investigation. Following the investigation, we are updating our relevant procedures accordingly.”
