Local power networks face prospect of slashed returns

Britain’s energy market regulator has warned it could slash allowed returns for companies that own local electricity networks by more than a third from 2023.

Ofgem on Thursday published plans to cut baseline annual rates of return to 4.4 per cent for five years from 2023, down from about 7 per cent under the current regime.

The move would hit companies such as ScottishPower, Berkshire Hathaway-owned Northern Powergrid and UK Power Networks — owned by Hong Kong’s CK Group — which own local distribution networks that transport electricity from the high voltage national transmission grid to homes and businesses.

The proposal comes after years of criticism from organisations such as Citizens Advice over the profits energy network companies have been allowed to make at the expense of households, which pay for maintaining and upgrading grid infrastructure through their energy bills.

Former Labour leader Jeremy Corbyn had wanted to renationalise Britian’s energy networks.

Because energy networks in effect run monopolies, the returns they are allowed to make to their shareholders are regulated by Ofgem during a set period known as a “price control”.

The plans published on Thursday are, however, only a “working assumption”. Companies and the regulator will now enter a lengthy process that will lead to a final ruling in December 2022.

The proposal comes as companies that own national electricity and gas grids, as well as local gas infrastructure, are appealing against a separate ruling by Ofgem to cut their returns by about 40 per cent from next month, when their regulatory regime commences.

Jonathan Brearley, Ofgem chief executive, said the plans for local electricity networks would “significantly cut investor returns to make sure consumers pay a fair price for energy whilst networks attract the investment they need to be safe and green”.

Citizens Advice applauded Ofgem for “continuing to limit shareholder returns” for local electricity grid companies even “in the face of appeals by other energy networks”.

“This is a win for consumers,” said Alistair Cromwell, acting chief executive of Citizens Advice.


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