Households to save £5bn on energy bills under new plans

Ofgem threatens toughest ever blow to energy network profits

Ofgem has proposed new rules that it says would lead to United Kingdom consumers saving £5bn on energy bills over five years. This includes controlling costs to consumers, strengthening reliability, improving customer satisfaction significantly since privatization, spurring continued investment in energy networks and fostering greater innovation.

Under RIIO2, which will come into effect from 2021, Ofgem intends to cap the cost of equity range to between 3% and 5%, a move which it has said could save consumers between £15 and £25 per year on a dual fuel household bill.

"These proposals should prevent a repeat of the billions in excess profits energy network companies are making under the current price controls", said the chief executive of the consumer charity, Gillian Guy.

United Kingdom utility regulator Ofgem today issued its consultation document on the RIIO-2 framework for regulating energy network companies once the current price control periods end, which will not occur until April 1, 2023 for PPL Corporation's Western Power Distribution (WPD) business.

Jonathan Brearley, Ofgem's senior partner for networks, said a stable regulatory regime allowed companies to attract investment at lowest cost. "We will capitalise on this by getting network companies to work harder to deliver better value for consumers in the next price controls".

Ofgem also proposed shaking up the regulatory framework system, saying the current eight-year period should be shifted to a five-year price control to better predict the UK's investment needs as it transitions to a lower carbon energy system.

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Tougher requirements to put network companies' business plans for the next price controls under the microscope. It also plans to set up independent user and consumer engagement groups to challenge companies' plans.

The plans include more scope for opening up "high value" network upgrades to competition, which would build on the success of Ofgem's tendering regime for offshore wind links.

New fail-safe measures to protect consumers, and others to ensure that savings from greater efficiencies or innovations are shared with consumers.

Ofgem said stakeholders had until May 2 to respond to the proposals with the framework finalised in summer 2018. The companies will submit business plans by autumn 2019.

At the time, the Energy Networks Association (ENA) said it disagreed with the modelling used by Citizens Advice for its report.

Ofgem said that, under its existing price controls, the cost of transporting a unit of electricity around Britain has fallen by 17% since the mid-1990s.

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