Ofgem pro­posal to slice en­ergy firms’ prof­its in half sparks fury

The Daily Telegraph - Business - - Business - By Ed Clowes

EN­ERGY sup­pli­ers are brac­ing for a show­down with the reg­u­la­tor Ofgem over a con­tro­ver­sial £25bn spend­ing plan that will ham­mer their prof­its.

Ma­jor play­ers in­clud­ing Scot­tish Power are fu­ri­ous af­ter the watch­dog an­nounced it would halve the prof­its they are per­mit­ted to make, shav­ing £20 a year off av­er­age house­hold bills.

The pro­pos­als – an­nounced as part of Ofgem’s five-year plan for the in­dus­try – sparked claims com­pa­nies will be so tightly squeezed there is no money left for in­vest­ment in in­fra­struc­ture.

Scot­tish Power chief Keith An­der­son claimed that reg­u­la­tors had “com- pletely flunked” the first test to prove their green cre­den­tials by do­ing too lit­tle to bol­ster spend­ing on clean power.

Be­cause Ofgem has cut firms’ per­mit­ted prof­its, it has also had to re­duce the amount that must be spent on in­vest­ment. Firms have been told to plough £25bn into up­grad­ing the coun­try’s power net­work, and £10bn into mea­sures to cut car­bon emis­sions

– much less than the in­dus­try ex­pected. Bosses are now call­ing for free­dom to charge more, al­low­ing them to make higher prof­its and in­crease spend­ing.

Mr An­der­son said: “I’m lost for words. I’m com­pletely stunned. They haven’t just missed the tar­get, they’ve missed the wall the tar­get is on.” He added that the “un­be­liev­able” de­ci­sion to slash re­turns would bring the “green recovery” to a crash­ing halt by starv­ing low-car­bon schemes of cash.

How­ever, Ofgem said: “Strong ev­i­dence from wa­ter reg­u­la­tion and Ofgem’s off­shore trans­mis­sion regime shows that in­vestors will ac­cept lower re­turns and con­tinue to in­vest ro­bustly in the sec­tor.” Net­work com­pa­nies also hit back shortly af­ter the an­nounce­ment was made, claim­ing the new rules would leave them with less money to in­vest in jobs and in­fra­struc­ture.

Ni­cola Shaw, of Na­tional Grid, said the lower in­vest­ment lev­els mean it will take longer to make the in­dus­try car­bon neu­tral. She said: “We are ex­tremely dis­ap­pointed and the de­ci­sion will de­lay net zero. It will stul­tify it.”

Last De­cem­ber Ofgem pledged to slash con­sumer bills over the next decade while tak­ing a chunk out of distrib­u­tors’ prof­its, in a move that was deeply un­pop­u­lar with elec­tric­ity com­pa­nies.

The reg­u­la­tor sets the prices that com­pa­nies such as Scot­tish Power and the Na­tional Grid can charge for dis­tribut­ing gas and elec­tric­ity to homes around the coun­try, while also dic­tat­ing how much of their prof­its they must rein­vest into the UK’s age­ing en­ergy in­fra­struc­ture.

A num­ber of util­ity firms vowed to ap­peal over the rul­ing to the Com­pe­ti­tions and Mar­kets Author­ity. En­ergy firms have six months to re­spond to Ofgem be­fore a fi­nal de­ci­sion is made.

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