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industry & Government news

DIGEST

OFGEM FACES A FIERCE BACKLASH
FROM UK ENERGY COMPANIES
OFGEM UNDER PRESSURE TO such as IT and cyber security would
JONATHAN BREARLEY - CEO

RETHINK CRACKDOWN ON UK have an impact on the “integrity and
security of our network”.
Sarah Williams, Director of Regulation
ENERGY NETWORKS at WWU, added separately that
Ofgem’s plans raised the “likelihood of
disruption to gas supplies — which is not
in the interest of domestic consumers,
ONE OF THE UK’s four gas distribution new Chief Executive Jonathan Brearley business or heavy industry”.
networks has warned that its to change tack before the regulator Frank Mitchell, Head of Networks
shareholders are “facing the prospect of makes a final decision in December. at ScottishPower, owned by Spain’s
zero cash returns” under plans by the Organisations such as Citizens Iberdrola, also criticised the regulator’s
regulator to slash earnings for companies Advice have been highly critical of plans, saying they could prompt his
that own the country’s energy networks. networks’ returns in recent years. parent company to prioritise investing
The Financial Times reports that Returns for companies that own in energy infrastructure abroad.
Wales & West Utilities, which covers local electricity grids are dealt with Returns on US energy networks are “at
about a sixth of the UK, is the first separately by the regulator. least twice as much”, Mr Mitchell told
privately held company to weigh into According to Ofgem’s plans, the the Financial Times.
a fierce row with Ofgem after the baseline rate of return on equity will be “When money is looking to go where it
regulator proposed to dramatically set at 3.95 per cent for the five years from has to go... what’s the benefit of coming
decrease returns many energy network April, down sharply from 7-8 per cent to the UK versus the US?” he said.
owners can make from April next year. under the current regime, which has been Alistair Phillips-Davies, SSE’s Chief
Since it revealed its proposal in July, in force since 2013. The regulator also Executive, suggested to Mr Brearley
Ofgem has faced a fierce backlash from cut £8 billion of planned spending from that there was “still time for us to work
the public companies that run the UK’s network companies’ proposals, claiming together” to unlock “billions of pounds
energy infrastructure, including National the plans had not proven they would of investment”.
Grid, Iberdrola and SSE. They claim the provide value for money. Ofgem insisted it was lowering allowed
plans will threaten jobs as well as the But in a document published by rates of returns to “levels consistent with
stability and security of Britain’s energy Wales & West Utilities (WWU), the current evidence and market conditions
system, undermining the country’s network warned that Ofgem has made for similar sectors such as water”.
ability to achieve its legally binding 2050 “inadequate” allowances both for the “The evidence makes clear that
net zero emissions target. costs of its debt and its equity, which networks can attract investment at
The attacks increased during the could leave its shareholders with “zero much lower rates of return and remain
consultation period, which saw cash returns”. The company also said a stable and attractive proposition to
companies fight to persuade Ofgem’s cuts to its proposed spending in areas investors,” it said.

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