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Companies appeal against plans to slash household energy bills
5 March 2021, 11:54
Ofgem had proposed to cut returns for energy networks by around half.
Nine energy networks have challenged plans by Ofgem that the regulator said would save households money off their energy bill every year.
The networks, including National Grid, Scottish Power and Cadent Gas, have appealed against the decision from the energy regulator.
The plan would approximately halve the rate of return that firms could take from their investments, but several companies said it may put the investment needed to reach the UK’s environmental targets at risk.
The Competition and Markets Authority (CMA) will decide whether to grant the companies permission to appeal within two weeks. It will then have six months to determine whether Ofgem’s proposals can go ahead.
The CMA said: “The appeals largely focus on the allowed return on investment and the way Ofgem calculated the costs the companies would spend on maintaining and investing in their networks over the next five years.”
Energy companies reacted strongly against Ofgem’s proposals as they were first released in July. The initial plans limited the rate of return that companies could make off their investments to 3.95%.
These returns are achieved through a charge on household energy bills and cutting them would have saved each UK household around £20, Ofgem said.
But after hearing further opinions from the sector, which said the decision would put investment in the green transition at risk, the regulator somewhat softened its stance, upping returns to 4.3%, which would slash energy bills by £10 on average.
Ofgem argues that investing in the UK’s energy networks carries very low risk and that lower returns will therefore not scare off investors.
The UK’s energy networks are heavily regulated and network returns are capped by Ofgem for multi-year periods.
The companies that have joined the appeal also include Northern Gas Networks, Southern Gas Network, Scotland Gas Networks, Scottish Hydro Electric Transmission and Wales & West Utilities Limited.
They will take heart from a provisional CMA ruling from last year which found in favour of four water networks that had launched a similar appeal against their regulator, Ofwat.
Akshay Kaul, Ofgem’s director of networks, said: “Our price control drives a fair price for consumers, improves services and boosts green energy investment.
“We respect the Competition and Markets Authority (CMA) appeal process, where we will defend robustly our decisions which are in the best interests of consumers and tackling climate change.
“While the appeals could take around six months to resolve, they will not delay any investment and we look forward to working closely with industry to accelerate investment for a green recovery.”
Ross Easton, director of external affairs at the Energy Networks Association trade body, said: “The UK’s energy network operators remain focused on providing a low cost, net zero energy system to the public.
“To deliver this, it is essential that the regulatory environment is attractive to the significant investment the country needs over the coming years.”