Ofgem proposes £206.8m spending cut for DNOs

Ofgem is proposing reducing allowances across all distribution network operators (DNOs) by £206.8 million. It states the new financial adjustments reflect DNOs’ performance under the previous price control – which […]

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By Priyanka Shrestha

Ofgem is proposing reducing allowances across all distribution network operators (DNOs) by £206.8 million.

It states the new financial adjustments reflect DNOs’ performance under the previous price control – which ended on 31st March 2015 – when electricity demand was “significantly lower than expected”.

As a result, some DNOs did not need to spend as much as they expected on reinforcing their grids.

The DNOs also cancelled a number of major schemes – worth £15 million or more – and have spent less than expected on others where they found better ways to complete the work.

The regulator sets the amount each DNO can spend on running and investing in its network before the price control begins.

The companies recover the money through charges on consumer energy bills and Ofgem incentivises them to deliver their agreed performance outputs.

It is now proposing adjustments to allowances totalling £74.6 million across some of the distribution networks of Western Power Distribution (WPD), ScottishPower Energy Networks, UK Power Networks (UKPN) and SSE.

It is also suggesting reducing allowances by a total of £132.2 million across WPD’s East Midlands network and two of UKPN’s networks.

Ofgem states: “This comes after our assessment of allowed DNO spending and output delivery during the period. The total reduction to allowances proposed across all DNOs is £206.8 million. This would result in reduced network charges on consumer energy bills for the remainder of the period covered by the RIIO-ED1 price control (2015-2023).”

The consultation will run until 14th August.

Ofgem has also slashed payments to small power generators.