Ofgem sets out how proposed reductions in National Grid and distribution network companies’ allowances will benefit consumers
Ofgem yesterday set out how the reductions it is proposing to make to network companies’ allowances will benefit consumers. 1
National Grid announced in March that it will voluntarily defer £480 million of its allowed expenditure.
National Grid’s deferral will initially reduce network charges on consumers’ energy bills by around £100 million between 2019 and 2021. 2
National Grid is deferring £480 million of expenditure on maintaining and upgrading its high voltage transmission grid due to lower electricity demand and fewer new connections needed than forecast during its current price control.
Ofgem has set out separate proposals to make financial adjustments to reflect electricity distribution network owners’ (DNOs) performance under the previous electricity distribution price control, which ended on 31 March 2015. 3
This comes after our assessment of allowed DNO spending and output delivery during the period. The total reduction to allowances proposed across all DNOs is £206.8 million. This would result in reduced network charges on consumer energy bills for the remainder of the period covered by the RIIO-ED1 price control (2015-2023).
Electricity demand was significantly lower than expected in the last price control. As a result, some DNOs did not need to spend as much as they expected on reinforcing their grids. Ofgem is proposing adjustments to allowances totalling £74.6 million across some of the distribution networks of WPD, Scottish Power, UKPN and SSE. 4
The DNOs also cancelled a number of major schemes (individual schemes worth £15 million or more), and have spent less than expected on others where they found better ways to complete the work. As a result, Ofgem also proposes to reduce allowances by a total of £132.2 million across Western Power Distribution’s (WPD) East Midlands network and two of UKPN’s networks.
Notes to editors
- 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.
- Open letter to National Grid. Background: In March, National Grid announced that it would voluntarily defer £480 million it was due to invest in the high voltage grid during the 2013-2021 price control we set for the company. If National Grid had spent this money, it would have recovered the costs from consumers over 45 years (the typical lifespan of new electricity infrastructure). The sum of £100 million represents the amount of money that would have been charged to customers for this investment in the current price control. The rest of the £480 million will reduce National Grid’s allowance over 45 years, which will also feed through to lower energy bills relative to what they otherwise would have been over this longer time period.
- Consultation on proposed adjustments for DPCR5: A final decision on our proposals will be published at the end of September 2017. The consultation document explains in detail which networks are affected by the proposals.
- Map of Britain’s distribution networks.
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.
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