Ofgem has published its price control settlements for the five remaining distributed network operators (DNOs).
The new proposals will require DNOs to spend £17 billion to upgrade and maintain the UK’s electricity network. Ofgem claims that its proposals will help lower the average dual fuel bill by £12 for the eight-year proposed period.
Last year, only Western Power Distribution’s price control proposals were accepted by Ofgem. The remaining five DNOs’ proposals were returned because ‘they failed to deliver good enough value for consumers’.
Ten months later, UK Power Networks, Northern Power Grid, SP Energy Networks, SSE Power Distribution and Electricity North West, have stripped £2.1 billion from their initial proposals – with the companies identifying £700 million of savings and Ofgem disallowing an extra £1.4 billion.
Commenting on the proposals, Dermot Nolan, Ofgem chief executive said: “As energy regulator, a core part of our role is to set price controls for these monopoly network companies. This is the only part of the energy bill Ofgem directly controls and our plans today will deliver better customer service and efficient investment at a lower cost for the customer.
Nolan claims that Ofgem is responsible for over £80 billion of investment since 1990. In addition, Ofgem claims that it has managed to reduce total network costs to 83% of what they were 25 years ago, reducing distribution costs by 39% in the process.
The increasing role of low-carbon technologies is also set to have a dramatic impact on the DNOs operation of the network. Nolan explained how the proposals will help unlock low-carbon technology deployment. He said: “During the course of the price control there is expected to be an increased take up of low carbon technologies including heat pumps, solar panels and small-scale renewable generation. Ofgem’s regulation focuses companies’ attention on connecting these low carbon technologies in a timely and cost effective way, using smart solutions where appropriate.”
Ofgem states that ‘smart solutions’ will monitor the network using automated responses to ensure the efficient use of existing infrastructure. Smart solutions will also allow DNOs to actively manage consumption and generation patterns.
Responding to the proposals, Dale Vince, Ecotricity founder said: “The whole setup with the electricity distribution companies is wrong for consumers – they are monopolies that are privately owned, mainly by foreign banks and pension funds, charging Britons to use infrastructure that we used to own and generations of us paid to build in the first place. Much of this money from our energy bills now leaves Britain to pay dividends to mostly foreign shareholders instead of being reinvested in better networks and services.
“Ecotricity wrote to the regulator Ofgem 18 months ago highlighting the incredible level of profits these wire companies were making, 50% before tax, and the massive dividends being paid to mostly foreign shareholders. It's been a licence to print money. Along with the Big Six and more recently some independent energy suppliers, they’ve been running rings around Ofgem since privatisation.
“This new settlement may reduce the profiteering, but the proof of that and whether this really is a better deal for consumers and for Britain, will be whether those huge profits and dividend payments continue in the years to come, only time will tell. The real solution though is not a periodic haggle with these distribution companies, but taking the sector back into public ownership. Privatisation has simply failed to deliver.”
Ofgem will consult on the proposals for eight weeks and is expected to publish the result of the consultation in November 2014. The full document can be viewed here.