Ofgem gets nod for plan that will cut energy bills

THE competition watchdog has backed the energy regulator’s decision to slash energy bills, but ordered it to overturn a different decision, creating a mixed bag for power networks.

The Competition and Markets Authority said there is nothing to stop Ofgem from cutting the returns that shareholders in the energy networks are allowed to take and that its methods have not been wrong.

It was one of the main areas of contention when nine energy networks appealed to the CMA to protect their shareholders’ payouts.

Energy networks charge suppliers to use their grids, and suppliers then pass this cost on to households.

But the CMA’s decision will now allow Ofgem to slash these shareholder returns to 4.55% over the next five years. The decision upholds the CMA’s previous finding, against which the networks had appealed.

Citizens Advice chief executive Dame Clare Moriarty said: “This decision is good news for consumers and a major step forward in fixing the problem of excessive profits made by network companies. It sends a clear signal to the companies still to go through the price control process (electricity distribution networks) that they won’t be getting the same bumper payday as last time round.

“But we shouldn’t be under any illusions – the price control and appeals processes are skewed in favour of the networks. There is still too much scope for companies to make hundreds of millions in unearned profit at consumers’ expense.”

Both National Grid and SSE’s transmission unit said they are “disappointed”

by the CMA’s decision on the socalled cost of equity.

National Grid had warned that the figure was set so low that the UK could lose out on much-needed investment as it tries to eliminate net greenhouse emissions by 2050.

However, the networks had more cause for cheer elsewhere, as the CMA struck down part of Ofgem’s decision known as the outperformance wedge.

Ofgem believed that the networks were likely to outperform over the next five years, so took this into account when calculating how much they could charge customers.

This would have slashed National Grid’s revenues by £90 million, the company said. National Grid accused Ofgem of basing its findings on an “inconclusive academic report”.

The CMA said there was a realistic chance that Ofgem’s decision could “undermine broader regulatory certainty which could result in increased costs to consumers over time”.

It said Ofgem was wrong on this issue, and ordered the regulator to remove the outperformance wedge.

SSE said it “welcomes that the CMA has upheld its appeals against the assumed outperformance wedge”,

However, SSEN Transmission said it is disappointed that the CMA has not upheld its appeals on the flawed cost of equity, or on changes to how Transmission Network Use of System Charges are recovered and the associated risk of under-recovery this presents.

It said it will continue to assess the full details of the CMA’s final determinations as they become available.