Energy groups allowed to raise prices:
The UK's electricity and gas transmission companies will be allowed to increase their prices over the next five years to double investment spending on their networks, energy regulator Ofgem said on Monday. The extra investment, which will fund the replacement of ageing power lines and gas pipes as well as the connection of new gas and windfarm projects to the national grid, will cause the average household gas bill to rise £10 next year. Ofgem said on Monday that National Grid, Scottish Power and Scottish and Southern Energy would be able to charge their customers more to use their electricity and gas transmission networks from April 1 2007. The increased charges would allow the companies to spend more on renewing their infrastructure, and connecting new gas and electricity projects to the networks. Ofgem said in its initial proposals in September that it would allow the companies to spend a total of £4.5bn between 2007 and 2012, and put charges up accordingly. National Grid, which owns the energy transmission networks in England and Wales, and Scottish Power and Scottish and Southern, which own the networks in Scotland, said this was not high enough and the total should be nearer £5.6bn. The regulator said on Monday in its final proposals that it had eased its position very slightly, and would allow the companies to spend £4.6bn. Expenditure of £530m has already been authorised to fund investment in network connections for renewable energy projects, bringing the total to £5.1bn. Ofgem and the companies had also disagreed on how much profit they should be allowed make on their transmission activities. Ofgem had suggested a 4.2 per cent post-tax rate of return, while National Grid had asked for 4.9 per cent. Ofgem said on Monday that the allowed return would be 4.4 per cent. The companies have until January 8 to respond to Ofgem's final proposals. National Grid, which is the company most affected by the decisions, said: “We have received Ofgem's final proposals for the transmission price review. As one would expect for proposals of this complexity, we will be considering them in detail before making a decision on whether to accept them.” Analysts at Citigroup said the capital expenditure proposal fell £1bn short of what National Grid had called for, but that it was a compromise that would probably dissuade the company from appealing to the Competition Commission. The cost of transmission, or transporting electricity and gas over long distances, makes up only 3 per cent of total energy supply costs, so Ofgem's decision should have a relatively small impact on household bills. Shares in National Grid rose 7.5p, or 1 per cent, to 709p. Scottish Power shares rose 14p to 760p and Scottish and Southern shares were unchanged at £14.58. Sir John Mogg, Ofgem chairman, said: “Investment in the backbone of Britain's gas and electricity networks is vital to maintain high levels of reliability and secure supplies for customers. It also meets the challenge of developing a sustainable policy for the climate change agenda, notably for the connection of low-carbon generation. “Throughout the review Ofgem has sought to protect customers, who ultimately must pay for such investments, by scrutinising the companies' investment proposals and operating costs to make sure that the plans represent good value for money. A £5bn investment programme is authorised by Ofgem between 2007 and 2012 – a 100 per cent increase on the companies' allowances over the last five year price control periods.” Ofgem said it would review of capital expenditure if companies' spending fells short of their commitments by 20 per cent. 7.12.06