Ofgem said it had breached a licence condition where it “secured excessive payments” from the Electricity System Operator (ESO).

Ofgem said the breach “caused significant damage to the interests of consumers”. It has charged a financial penalty of £1 to the firm, “on the condition it pays £9.78m to Ofgem’s consumer redress fund”, which provides money to energy-related projects across the UK including those to help low-income households.

It comes after an investigation by the regulator found that SSE had charged the grid too much in certain periods known as ‘transmission constraints’. These occur when there is a constraint on the amount of electricity being produced and where it is consumed.

If there is a constraint, the ESO is able to manage the flow of electricity across the UK’s network by increasing and decreasing the amount of electricity produced by different generators. This can happen if the demand for electricity is higher than the amount being supplied to an area.

When this happens, Ofgem said there is a risk that generators can charge excessive prices to the ESO, and this is what happened with SSE. However, operators are not allowed to do this, under rules set out in the Transmission Constraint Licence Condition (TCLC).

Ofgem launched an investigation into the way SSE was using its Foyers power station in Northern Scotland in October 2021 which is used when there is a transmission constraint.

It found that the provider increased its prices, charged to the ESO, and made them “significantly more expensive” during constraint periods. Ofgem said the price change “ultimately led to higher prices for consumers” who are using the electricity supplied at the higher cost.

The higher costs charged by SSE were paid by the ESO, and then charged to all electricity suppliers, leading to more expensive costs for all energy customers.

Ofgem said the change in price was made “to bring Foyers in line with what it [SSE] believed was the market practice of other pumped storage operators, and to increase profit.”

But the revised prices were expensive when compared to other operators and not compliant with the TCLC.

Ofgem said that although it saw no evidence that the breach was deliberate, “it should have been clear to SSE (including senior management) that its revised approach carried a significant risk of breaching the TCLC.”

Following the investigation SSE has put in place a new pricing methodology at Foyers. Ofgem said it co-operated and engaged constructively during the investigation and qualified for a discount compared to the £11.58m it would otherwise have been required to pay.

The ESO manages the electricity system so it is always balanced and there is enough energy for the UK. Generators can submit offer prices to turn up their electricity generation, if there is a high demand for electricity. They can also submit bid prices to turn down generation, which is the amount they will be paid by the ESO, if demand is reduced. Prices are then selected by ESO according to the amount of energy needed.

‘We co-operated fully with the investigation’

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.”

Cathryn Scott, director of enforcement and emerging issues at Ofgem, said: “Protecting consumers is a priority for Ofgem and we will continue to monitor the wholesale energy markets in Great Britain and ensure their integrity on behalf of energy users.

“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.

“If they fail to do so, they will face significant consequences.”

The regulator said this investigation was part of its ongoing work to ensure a fair energy market for everyone. In the last eight weeks it has fined E.ON, Octopus and Good Energy £8m, OVO and Good Energy £4m, and E.ON £5m.