LONDON (Reuters) -Britain's energy regulator Ofgem said on Thursday it had launched a consultation on a licensing condition that would prevent electricity generators from making excessive profits from a back-up a system to ensure power supply.
The announcement follows talks between Ofgem and other industry regulators with Jeremy Hunt, the finance minister, on Wednesday to try to protect customers facing a cost of living squeeze.
A balancing mechanism allows the National Grid (LON:NG) System Operator (ESO) to pay generators an inflated fee to produce electricity when it needs extra power to keep supplies to the grid stable.
Last year, Ofgem began investigating whether some electricity generators were taking advantage of the rules by limiting supplies ahead of the evening peak demand period in order to secure a high price for becoming available.
On the most expensive days, generators have charged up to 6,000 pounds ($7,586) per megawatt hour (MWh) to maintain supplies, Ofgem said.
Spot British wholesale electricity prices currently trade around 90 pounds/MWh.
“The proposed new licence condition will ensure electricity generators don’t take advantage of existing rules to make excessive profits in the balancing mechanism," Eleanor Warburton, acting director for Energy Systems Management and Security at Ofgem, said.
Costs accrued under the mechanism are ultimately passed onto customers via bills.
The consultation is due to close on July 27 and Ofgem said it expects to publish its final decision later this year.
($1 = 0.7910 pounds)