Ofgem cuts £200m from electricity distribution network company allowances

15 Sep 2017 01:42 PM

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.

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