Ofgem cuts £200m from electricity distribution network company allowances
Ofgem has confirmed that the allowances of some of Britain’s electricity distribution network operators (DNOs) will be reduced by around £200m in total following a review of performance in their previous price control (2010-2015).
The review assessed how much the DNOs had spent over the price control and what outputs they had delivered. The reduction in allowances of £200m will result in lower network charges on energy bills during the current RIIO (Revenue=incentives+innovation+outputs) electricity distribution price control (2015-2023).
Jonathan Brearley, Ofgem’s senior partner for networks, recently said: “We have already told network companies that they should prepare for tougher price controls from 2021, with lower returns.
“We also want to get a better deal for customers in the current price control period which is why we have announced a reduction in the DNOs’ allowances today. This is in addition to savings of over £4.5 billion for customers. These result from other action we have taken to reduce revenues in the current price controls, or voluntary contributions from some companies.”
Electricity demand was significantly lower than expected in the 2010-2015 price control and some DNOs did not need to spend as much as expected on reinforcing their grids. Ofgem has therefore reduced allowances by a total of around £74 million across some of the distribution networks of Western Power Distribution (WPD) Scottish Power, UK Power Networks (UKPN) and SSE.
Some DNOs also cancelled a number of major investment projects (individual schemes worth £15 million or more), and have spent less than expected on others where they found better ways to complete the work. This has led Ofgem to reduce allowances by a total of around £130 million across WPD’s East Midlands network and two of UKPN’s networks.
Notes to editors
- Ofgem has published a decision on DPCR5 Close out: Consultation on proposed adjustments.
- Ofgem sets the amount each network company can spend on running and investing in its network before the price control begins. The companies recover this money through charges on consumer energy bills. Ofgem incentivises network companies to deliver their agreed performance outputs. If companies spend less money than was expected, the regulatory framework that the companies have agreed to requires that they share savings with consumers. This incentivises the companies to look for the most efficient ways to manage and invest in their networks. If companies do not deliver their agreed outputs then we reserve the right to take action to protect consumers’ interests, including the clawback of associated funding. There are four RIIO price controls - for gas distribution, electricity distribution, gas transmission and electricity transmission (for the high voltage electricity grid and the high-pressure gas main). The current gas distribution and transmission price controls run from 2013-2021. The electricity distribution price control is from 2015-2023.
- Ofgem set out its views on tougher price controls for network companies from 2021 in this press release.
- Map of Britain’s distribution networks.
Further information for media
Chris Lock: 0207 901 7225
Media out of hours mobile: 07766 511470 (media calls only)
Further information for investors
Martin Young, head of investor relations: 0207 901 7114
Ofgem is the independent energy regulator for Great Britain. Its priority is to make a positive difference for consumers by promoting competition in the energy markets and regulating networks.
Subscribe to our news and communications.
Latest News from
Suppliers must do more to help those in debt, as report shows customers accrue more than £600 on average in unpaid bills17/10/2017 12:15:00
Suppliers must do more to help those in debt, Ofgem has said, as new research shows that customers are building up on average over £600 in unpaid bills on their gas and electricity accounts before suppliers step in to help them manage paying it back.
Ofgem extends price protection to 1 million more vulnerable households this winter11/10/2017 15:15:15
Around 1 million households will save £120 a year on average when Ofgem extends its prepayment safeguard tariff for more vulnerable people this winter.
Latest data on Consolidated Segmental Statements, Supplier Cost Index and standard variable tariffs31/08/2017 12:25:00
Ofgem has published complete annual data1 on the profit margins from the six large energy suppliers’ Consolidated Segmental Statements2 which Ofgem requires them to submit.
Ofgem’s response to National Grid’s proposed network upgrade to connect the new Hinkley Point C nuclear power station31/08/2017 09:15:00
Ofgem yesterday said that an upgrade to the high-voltage grid is needed to connect the new nuclear plant at Hinkley Point, but considers that the costs to consumers of the upgrade can be reduced.