Ofgem has published plans to cut baseline annual rates of return to 4.75 per cent for the five years from April 2023, down from about 6.8 per cent under the current regime. This means the companies that own the UK’s local electricity distribution networks are facing big cuts to the profits they are allowed to make after the country’s energy regulator told them to invest more in maintenance and improvements.
The regulator has said the proposal would enable £20.9 bn to be spent on maintenance and measures to boost resilience, such as the replacement of wooden poles, while keeping charges to customers stable at about £100 per year. The move would hit six monopolies including ScottishPower, Northern Powergrid and UK Power Networks which own the local distribution networks that transport electricity from the high voltage national transmission grid to homes and businesses.
The proposals are expected to be contested, with a final decision projected by the regulator by the end of the year. Jonathan Brearley, chief executive of Ofgem, said: “Ofgem’s job is to ensure energy networks have achievable and affordable plans that will attract the investment needed for a more resilient energy network and achieve the government’s net zero ambition at the least cost to the consumer.”
An investigation by Ofgem found that nearly three quarters of the damaged poles were more than 40 years old, suggesting a lack of investment in the network had contributed to the problems. The regulator is keen to ensure that the companies become more efficient rather than raising consumer bills.
