UK energy regulator Ofgem has taken action against SSE Generation Limited after uncovering a breach of its generation licence. Following an extensive investigation, Ofgem has issued a notice proposing that SSE pay a penalty of £9.78 million. The breach involves SSE receiving excessive payments from National Grid Electricity System Operator (NGESO) in exchange for reducing output at the Foyers pumped storage power station.

The investigation focused on the practice known as "transmission constraint," which occurs when there are limitations in the transmission system's capacity to distribute power. In such cases, NGESO takes measures to manage the flow of electricity, including adjusting output levels from various generators through the balancing market.

Ofgem discovered that SSE had taken advantage of transmission constraints by charging NGESO inflated prices to reduce the Foyers power station's output. The Transmission Constraint Licence Condition (TCLC) expressly prohibits such behaviour. In May 2020, SSE made a decision to significantly increase the bid prices it charged NGESO for reducing Foyers' output, even during periods of transmission constraint.

SSE said it was aligning with the market practices of other pumped storage operators and seeking to enhance profitability. However, Ofgem determined that SSE's revised prices were unreasonably high compared to industry standards and failed to comply with the TCLC. As a result, balancing charges increased, burdening consumers with additional costs.

Although Ofgem did not find evidence suggesting deliberate intent to breach the TCLC, it asserted that SSE should have been aware of the significant risk associated with its revised pricing strategy. Cathryn Scott, Director of Enforcement and Emerging Issues at Ofgem, emphasized the regulator's commitment to safeguarding consumers' interests and maintaining the integrity of the energy markets.

As part of resolving the investigation, SSE has committed to implementing a new pricing methodology that accurately reflects the costs and benefits of reducing generation at the Foyers power station. SSE cooperated and engaged constructively during the investigation, expressing a willingness to settle the case. Consequently, the company will receive a discount compared to the original penalty amount of £11.58 million.

Ofgem's ongoing compliance work aims to ensure fairness in the market for all participants. The regulator expects licensees to be fully aware of their legal obligations, including compliance with the TCLC, and implement adequate measures to prevent breaches.

Interested parties have until June 27, 2023, to submit written representations or objections to Ofgem regarding the proposed penalty on SSE. Ofgem will consider these submissions before making its final decision on whether to impose the penalty.