Resistance to Ofgem price controls intensifies

Slashing financial returns

Saving consumers money

Ofgem is defending its position by stating that by limiting the returns energy companies can make energy bills will be reduced for the consumer. The regulator has come under fire in the past from consumer groups who accused it of being too generous to the energy companies at the cost of higher consumer energy bills.

The planned proposals will see energy companies only allowed to make returns on their investments of 3.95% for the next five years starting in April next year. This figure is down from 7-8% under the current plan.

Another issue that has angered energy companies is that Ofgem has slashed £8 billion from companies spending plans, citing that they had not done enough to ‘prove they were good value for money’.



Hitting companies where it hurts, in the wallet, at a time when concerns over the impact of the Covid19 lockdown are high was certain to increase company ire against the regulator.

Power cuts warning

SSEN put the boot in by listing a series of concerns over the Ofgem plans chief of which is the £172 million of cuts it identified as calculation errors made by the regulator. It said that as a result, it would not be able to cover all of its investments.

It also raised concerns that £300 million worth of investment needed to replace aged renewable generation connection assets, network reliability, Critical National Infrastructure and smart technology has been cut that will in turn risk the reliability of the nation’s energy network.

The comments come after National Grid CEO John Pettigrew has told the press that he fears that power lines in some parts of the country will ‘decay’ without increased spending.

Read more: Lack of investment could lead to Blackouts warns National Grid CEO

NetZero target at risk

Questions over the viability of achieving NetZero were increasing even before the announcement of the Draft Determination but now energy companies are claiming that the proposals will add another barrier.

“The proposals introduce delays and bind up network investment in red tape instead of enabling net zero. Instead of enabling NetZero, it will fail to meet 2030 targets, as well as result in a missed opportunity from a green recovery, a lower service for customers and a failure to attract essential investment,” said SSEN.

Zero returns

Over the weekend Wales and West Utilities became the first privately held company to join the fray. It warned that Ofgem had failed to make adequate allowances both for the costs of its debt and its equity which could result in its shareholders with ‘zero-cash returns’.

It also warned that cuts to its spending in areas such as cybersecurity and IT would negatively impact the security of its network and could result in disruption to gas supplies. 

Jobs and investment at risk?

Scottish Power which is owned by Spain’s Iberdrola has also criticised Ofgem’s plans and said that it could prompt its parent company to look elsewhere to invest in infrastructure overseas.

“Returns in US energy networks were ‘at least twice as much’ as Ofgem was proposing. When money is looking to go where it has to go… what’s the benefit of coming to the UK versus the US?” warned Frank Mitchell, the head of networks at Scottish Power.

The final decision by Ofgem will be announced in December and it’s a certainty that energy companies will continue to pile on the pressure to make the regulator change its mind. Once the decision is announced and if Ofgem refuses to back down the companies will be able to challenge the regulator via the Competitions and Markets Authority (CMA).

Further Reading

Is ‘Green Energy’ really good for the environment?

Unprecedented rebellion on the cards as energy companies protest Ofgem pricing plans

Ofgem confirms gas charging reforms will be implemented in October despite criticism from business leaders

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