Energy network firms face lowest ever returns rate under new Ofgem proposals

Courtney Goldsmith
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Ofgem set out its plans for 2021 price controls (Source: Getty)

The companies that run Britain's energy networks could be faced with a "significantly" lower range of returns for stakeholders in tough price control plans released by Ofgem today.

The energy regulator said its tougher approach would deliver savings of more than £5bn to consumers over five years from 2021, or about £15 to £25 per year on a dual fuel household bill.

In its proposals for a new regulatory framework, Ofgem set out a cost of equity range, or the amount network companies pay their shareholders, of between three and five per cent, the lowest rate ever proposed for energy network price controls in Britain.

Read more: Ofgem bans suppliers from charging customers on energy used a year ago

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.

It also called for an independent user and consumer group to challenge and monitor companies' business plans.

Stakeholders have until 2 May to respond to Ofgem's proposals.

National Grid today said the consultation was "another important step" in the price control process.

"We will continue to work constructively with Ofgem over the next three years to achieve the best outcomes for all stakeholders. We will keep the market updated as the process moves forward," the firm said.

Citizens Advice, which last year claimed network companies were making "unjustifiable profits" due to errors in forecasting price controls, said the announcement was a "major step forward".

Gillian Guy said the outcome of the consultation would be an "acid test" for Ofgem.

"It’s crucial that the regulator holds its nerve and sees through these changes," Guy said.

“Curbing the ability of energy network companies to make excessive profits, limiting the price control to five years, and ensuring a greater voice for consumers are all measures that should take us closer to a towards an energy market that genuinely works for consumers.”

A spokesperson for the Department for Business, Energy and Industrial Strategy (Beis) said it welcomes "any moves to get a fair deal for consumers".

“We recognise the importance of a stable regulatory regime for investors but this cannot come at an unjustifiable expense to consumers," the spokesperson said.

Read more: Ofgem has contingency plans if the energy price cap is not ready by winter

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