What goes around comes around: Shell Energy forced to pay £390,000 for overcharging thousands of customers

July 3, 2019

2 min read

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What's going on here?

The energy watchdog Ofgem ruled that Shell Energy (the utility company) overcharged approximately 12,000 of its gas and electricity customers above the price cap that was introduced in January 2019.

What does this mean?

At the start of the year, an energy price cap was introduced in order to protect around 11 million customers who were on “poor value energy deals” (standard variable and default energy tariffs). The cap lasts until September of this year and caps energy bills at £1,254 per year. Shell Energy is the first to fall foul of the regulators as Ofgem discovered that some of its customers had been overcharged a total of £100,736 during the first three months of the temporary cap. Around 6,200 customers were on tariffs that exceeded the price cap, whilst the other 5,600 suffered delays in the reduction of their bill in order to comply with the price cap. In compensation Shell Energy will pay a full refund plus £10 per fuel (worth £62,000) for the 6,200 and £5 per fuel for the 5,600. Shell Energy also announced that it will pay £200,00 to Ofgem’s customer redress fund that helps to support vulnerable customers.

What's the big picture effect?

Shell has high ambitions. The company wants to be the largest electricity company in the world by 2030. Over the past few years Shell has been extremely active in the pursuit of this goal. Following years of cuts in the aftermath of the 2014 oil price crash, Shell announced in early June that it will aim to invest $30 billion per year between 2021 and 2025. It has expanded into renewables with projects like its wind farm in Holland. It has also invested in solar power in Singapore, whilst also buying Sonnen (a German battery company), NewMotion (a Dutch vehicle charging business) and First Utility (a UK power supplier).

While there has been some movement towards renewables, Shell has focused mainly on gas production in order to enhance its power generation and retail energy business. This might seem counterintuitive considering the fact that the US shale industry is creating a large surplus of gas and Europe is favouring cheaper renewable sources which are consequently pushing down gas prices.

While the electricity market remains highly competitive and regulated (making power generation and the retail elements of the energy seem less attractive than just focusing on gas production), Shell feels that it can produce the gas, generate the electricity and then sell it to consumers all by itself. This structure in Shell’s business is significant in its attempt to achieve its lofty goal of being the largest electricity company in the world.

But sometimes the devil is in the detail. Shell’s acquisition of First Utility, and its entry into the retail side of the energy business has faced its first challenge with a £390,000 fine from the regulator Ofgem. If Shell wants to seriously mount a challenge on the Big Six energy suppliers (British Gas, EDF Energy, E.ON., npower, Scottish Power and SSE.) it will have to avoid these kinds of scandals and better comply with regulators when it comes to the retail side of the energy business.

Can it rise to the challenge?

Report written by Will H

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