UK energy regulator aims to toughen terms for network companies
7th March 2018 | Residential Energy
Britain’s energy regulator wants to trim 5 billion pounds from consumer bills over five years from 2021 by slashing the amount gas and electricity network firms can return to shareholders, it said on Wednesday.
Rising energy bills have drawn increasing public criticism, prompting Prime Minister Theresa May promise an end to what she has called “rip off” gas and electricity bills. The government has introduced legislation to parliament to cap prices.
Under its proposals, Ofgem plans to cut the “cost of equity range”, or the amount network firms pay their shareholders, to 3 to 5 percent for the next regulatory period starting 2021, down 6 to 7 percent now.
“In total, we estimate this would result in savings of over 5 billion pounds for household consumers, or about 15-25 pounds per year on the dual fuel household bill, who pay for the network through their energy bills,” Ofgem said.
Under Ofgem’s framework, energy network operators set out their plans for investment and how much they expect this to cost over the period. Ofgem sets the return the companies can make.
Network firms said Ofgem’s new plans could hurt investment.
“Ofgem will need to think very carefully about whether their proposals encourage the necessary investment in critical infrastructure that ensure resilience of the nation’s energy supplies,” Scottish Power Energy Networks said in a statement.
Fixed returns have prompted investors to scoop up network assets in recent years, including Abu Dhabi Investment Authority, which in 2016 bought a 16.7 percent stake of the Scotia Gas Networks business from SSE for £621 million. Other investors in Britain energy network include National Grid, Iberdrola’s Scottish Power, Australian investment bank Macquarie and Hong Kong’s Cheung Kong Group.
Companies have until May 2 to respond to Ofgem’s proposals with the final framework to be set in summer 2018. The current regulatory period runs from 2013 to 2021.
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