Ofgem has set out its proposed price control settlements for five of the six companies that run Britain’s local electricity network, which transports energy into homes and businesses.
Its proposals would see the network companies spend £17 billion to upgrade and maintain Britain’s local electricity network. At the same time, this part of the energy bill – which accounts for 8% of an annual dual fuel bill – will be on average £12 a year lower than it is today for the eight-year period of the control. These proposals are planned to come into effect in April 2015 and run until 2023.
Last November, Western Power Distribution was the only company to have its price control agreed early after Ofgem judged its business plan for the eight year period showed sufficient value for consumers. Ofgem returned five out of the six companies’ plans (UK Power Networks, Northern Power Grid, SP Energy Networks, SSE Power Distribution and Electricity North West) because they failed to deliver good enough value for consumers. Since then, £2.1 billion has been cut from the plans, with companies identifying £700 million of these savings and Ofgem disallowing a further £1.4 billion following analysis and benchmarking of costs.
In addition to requiring efficient investment, Ofgem challenged the companies to improve customer service and take a more active role in helping vulnerable customers. Companies have responded well and plan to improve the help to vulnerable customers for example during power cuts.
Ofgem’s annual customer satisfaction survey focuses companies’ attention on this important area and poor performers will face financial penalties. Ofgem has also sharpened targets to help new customers, such as businesses, new renewable generation (including community plans) and housing developments, get connected to the network faster.
Dermot Nolan, Ofgem Chief Executive said:
“As energy regulator, a core part of our role is to set price controls for these monopoly network companies. This is the only part of the energy bill Ofgem directly controls and our plans today will deliver better customer service and efficient investment at a lower cost for the customer.
“This announcement is all part of Ofgem’s consistent drive to get the best deal for consumers while maintaining a stable regulatory regime which attracts investment as cheaply as possible. Our approach has delivered over £80 billion of investment since 1990 which has seen reliability increase and power cuts fall by 30%. At the same time, total network costs are 17% below where they were 25 years ago and electricity distribution costs are 39% lower.
“During the course of the price control there is expected to be an increased take up of low carbon technologies including heat pumps, solar panels and small-scale renewable generation. Ofgem’s regulation focuses companies’ attention on connecting these low carbon technologies in a timely and cost effective way, using smart solutions where appropriate.”
Smart solutions use real time information about the network and automation technology to make more efficient use of existing infrastructure. They also allow active management of consumption and generation patterns. These solutions can reduce the need for investment to accommodate new connections and mean that the network is more flexible to the changing patterns of consumption and generation.
With smart meters being rolled out to all homes and small businesses by 2020 the network companies will have access to much more information about the performance of their network which they can use to improve performance and increase efficiency.
The proposals are now under consultation for the next eight weeks. Ofgem will publish the final decisions in November 2014.