Ofgem orders energy distribution firms to trim costs

Ofgem has ordered five of the six companies that own and operate Britain’s local electricity network to trim down costs for consumers. Today the energy watchdog sent back proposals to […]

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By Priyanka Shrestha

Ofgem has ordered five of the six companies that own and operate Britain’s local electricity network to trim down costs for consumers.

Today the energy watchdog sent back proposals to cut bills from the firms, saying they “did not sufficiently demonstrate value for consumers”.

Customers have to rely on regulation from Ofgem to limit charges from distributors as they effectively operate on a regional monopoly rather than competing with each other as the main energy companies do.

Western Power Distribution (WPD) – which covers South Wales, the Midlands and the South West of England – was the only company whose price control could be agreed early.

Ofgem’s price control – known as RIIO-ED1 – sets out the amount network operators can charge for their services up to 2021.

Distribution costs make up a fifth (19%) of a yearly electricity bill. Ofgem said today’s regulation will see these costs snipped by 11.6%, or around £11.30, for nearly eight million households in WPD’s areas from April 2015.

WPD’s business plans, which cover the period from 1 April 2015 to 31 March 2023, included around £7 billion of total spending, with £3 billion of that pencilled in for upgrades and network maintenance.

Hannah Nixon, Senior Partner for Distribution at Ofgem said: “We understand that energy costs are a big concern for consumers and we set a high target for demonstrating value for money. We are pleased that nearly all companies have pledged to cut bills but we feel that most companies can go further in cutting their costs and expect to see further improvements when they resubmit their plans in March.”

She added WPD was “particularly impressive” and “clearly demonstrated it delivered for consumers on all areas and this is the reason it is eligible for fast-tracking.”

From the start of the price control in 2015, Ofgem is cutting the time at which companies need to pay customers for being off supply from 18 to 12 hours and ensuring payments rise according to inflation.