New OFGEM price controls on network providers to hit SSE and Scottish Power

British energy market regulator OFGEM has announced details of its plans to cut household gas and electricity bills by limiting how much network operators can pay shareholders.

This will impact Scotland’s ‘Big McTwo’ – Scottish Power and SSE which are vertically-integrated generators as well as network providers – and National Grid.

OFGEM said that the UK’s gas and electricity networks face a “tougher approach” that would deliver savings of more than £5 billion to consumers over five years.

Under its plans, a new regulatory framework would set a cost of equity range – the amount network companies pay their shareholders – of between 3% and 5% from 2021.

Describing it as the “lowest rate ever proposed” for energy network price controls in the UK, OFGEM said it will result in lower returns for energy network companies and significant savings for consumers.

It estimates this would result in savings of about £15 to £25 per year on the dual fuel for consumers who pay for the network through their energy bills.

OFGEM’s other proposals under a new regulatory framework include changing to a default five-year price control instead of the current eight-year period and tougher requirements to put network companies’ business plans “under the microscope”.

Jonathan Brearley, OFGEM’s senior partner for networks, said: “The energy sector is rapidly changing and consumers must be confident they continue to get good value for money for the services the networks deliver.

“A stable regulatory regime allows companies to attract investment from around the world on behalf of consumers in Great Britain at the lowest cost.

“We will capitalise on this by getting network companies to work harder to deliver better value for consumers in the next price controls.”

Comment by Private Eye columnist, Old Sparky

Energy suppliers get a bad press and no sympathy – for good reason.

Customer service is often appalling; their IT systems are notoriously weak and pricing for householders is opaque and sometimes exploitative.

But UK energy policy and the current industry structure depend on the Big Six, who suffer from long-term decline in demand for gas and electricity, inroads by small suppliers and being beaten up by government and media.

If the new ‘tariff caps’ clip their wings sufficiently, there may be fewer big energy players left to lean on by the end of year.

9 Mar 2018

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