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RNS Number : 6972N
OFGEM
30 July 2014 
 
2014 
 
Wednesday 30 July 2014 
 
OFGEM ANNOUNCES £17 BILLION FOR ELECTRICITY NETWORK AND CUTS BILLS FOR
CUSTOMERS 
 
·      Electricity distribution part of bill to fall by £12 on average from
April 2015 while customer service standards rise 
 
·      £2.1 billion of savings achieved since Ofgem sent back companies'
initial business plans last year 
 
·      Ofgem continues to deliver a stable regulatory environment that secures
investment in Britain's vital infrastructure at a fair price to consumers 
 
Ofgem has today set out its proposed price control settlements for five of the
six companies that run Britain's local electricity network, which transports
energy into homes and businesses. 
 
Ofgem's proposals would see the network companies spend £17 billion to upgrade
and maintain Britain's local electricity network. At the same time, this part
of the energy bill - which accounts for 8% of an annual dual fuel bill - will
be on average £12 a year lower than it is today for the eight-year period of
the control. These proposals are planned to come into effect in April 2015 and
run until 2023. 
 
Last November, Western Power Distribution was the only company to have its
price control agreed early after Ofgem judged its business plan for the eight
year period showed sufficient value for consumers. Ofgem returned five out of
the six companies' plans (UK Power Networks, Northern Power Grid, SP Energy
Networks, SSE Power Distribution and Electricity North West) because they
failed to deliver good enough value for consumers. Since then, £2.1 billion
has been cut from the plans, with companies identifying £700m of these savings
and Ofgem disallowing a further £1.4 billion following analysis and
benchmarking of costs. 
 
In addition to requiring efficient investment, Ofgem challenged the companies
to improve customer service and take a more active role in helping vulnerable
customers. Companies have responded well and plan to improve the help to
vulnerable customers for example during power cuts. Ofgem's annual customer
satisfaction survey focuses companies' attention on this important area and
poor performers will face financial penalties. Ofgem has also sharpened
targets to help new customers, such as businesses, new renewable generation
(including community plans) and housing developments, get connected to the
network faster. 
 
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. 
 
"Today's announcement is all part of Ofgem's consistent drive to get the best
deal for consumers while maintaining a stable regulatory regime which attracts
investment as cheaply as possible. Our approach has delivered over £80 billion
of investment since 1990 which has seen reliability increase and power cuts
fall by 30%. At the same time, total network costs are 17% below where they
were 25 years ago and electricity distribution costs are 39% lower. 
 
"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." 
 
Smart solutions use real time information about the network and automation
technology to make more efficient use of existing infrastructure. They also
allow active management of consumption and generation patterns. These
solutions can reduce the need for investment to accommodate new connections
and mean that the network is more flexible to the changing patterns of
consumption and generation. 
 
With smart meters being rolled out to all homes and small businesses by 2020
the network companies will have access to much more information about the
performance of their network which they can use to improve performance and
increase efficiency 
 
Today's proposals are now under consultation for the next eight weeks. Ofgem
will publish the final decisions in November 2014. 
 
 ends  
 
Notes to editors 
 
1.   Electricity Distribution Price Control (RIIO-ED1) 
 
RIIO draft determinations consultation:
https://www.ofgem.gov.uk/publications-and-updates/riio-ed1-draft-determinations-consultation-slow-track-electricity-distribution-companies 
 
Infographic:
https://www.ofgem.gov.uk/publications-and-updates/infographic-how-ofgems-network-price-control-proposals-riio-ed1-will-affect-you 
 
More information on how price controls work can be found in our fact sheet,
'Price Controls Explained' 
 
There are 14 different distribution networks (DNOs) in Britain. These are
regional monopolies and customers rely on regulation by Ofgem, rather than
competition, to get the service they require at a reasonable price. In the
price control review we set the total revenues that DNOs can collect from
customers and we place strong incentives on these companies to innovate and
find new ways to improve their efficiency and quality of service. The
electricity distribution price control review (known as RIIO-ED1) sets the
revenues for the eight-year price control period. 
 
2.   RIIO and next steps for RIIO-ED1 
 
(Revenue=Incentives+Innovation+Outputs) is designed to incentivise companies
to meet the unprecedented challenges they will face during the next decade: to
find over £30 billion of investment needed to meet environmental targets and
secure energy supplies, while delivering long-term value for money for
consumers. 
 
Ofgem requires companies to develop a well-justified business plan. Initial
drafts were submitted in July last year, with the possibility for companies to
get early approval. The potential to be agreed early also known as
'fast-tracked', drove all the DNOs to raise their standards with savings of £2
billion compared to initial forecasts in 2012. After a rigorous assessment
process, Ofgem concluded that only Western Power Distribution (WPD)'s plan
offered good value for consumers and it was fast-tracked in February 2014. We
asked the remaining five network companies to submit their revised plans in
March this year. 
 
Today's proposals are now under consultation for the next eight weeks. Ofgem
will publish the final decisions in November 2014. 
 
The current price control expires on 31 March 2015 and the RIIO-ED1 price
control will run from 1 April 2015 - 2023. 
 
3.   Business Plan Comparisons 
 
 (£m 2012-2013 prices)  First Business Plan (Nov 2013)  Revised Business Plan(March 2014)  Ofgem Draft Determination  % Diff.  
 ENWL                   1,900                           1,877                              1,794                      -4.4%    
 NPG                    3,224                           3,172                              2,928                      -7.7%    
 UKPN                   6,726                           6,584                              5,995                      -8.9%    
 SPEN                   3,960                           3,491                              3,206                      -8.2%    
 SSEPD                  3,720                           3,635                              3,398                      -6.5%    
 Total                  19,531                          18,760                             17,321                     -7.7%    
 
 
4.   About Ofgem 
 
Ofgem is the Office of the Gas and Electricity Markets, which supports the Gas
and Electricity Markets Authority, the regulator of the gas and electricity
industries in Great Britain. The Authority's functions are set out mainly in
the Gas Act 1986, the Electricity Act 1989, the Competition Act 1998 and the
Utilities Act 2000. In this note, the functions of the Authority under all the
relevant Acts are, for simplicity, described as the functions of Ofgem. 
 
For further press information contact: 
 
Lisa O'Brien:            020 7901 7426 
 
Dafydd Wyn:           020 3263 9943 
 
Out of hours media contact number:  07766 511470 
 
This information is provided by RNS
The company news service from the London Stock Exchange