Last call - have your say on network companies’ business plans
Blog
Akshay Kaul
Director General, Infrastructure
Publication date
Industry sector
- Distribution Network
- Transmission Network
The companies that own the pipes and wires that bring gas and electricity to the UK’s homes and businesses have submitted their spending plans for the next price controls for gas and electricity transmission and gas distribution.
These will run from five years from April 2021 to March 2026.
Ofgem is calling on groups or individuals who have direct dealings with these network companies to give Ofgem their views on these companies’ business plans. Akshay Kaul, director of network price controls, explains how you can have your say and why it’s important to do so.
It is an open call for evidence so anyone can comment. But we are particularly interested in the views of consumers, consumer advocacy groups, environmental groups and those individuals or companies who are customers of the network companies.
This ‘call for evidence’ closes next week on Monday 10 February.
How network funding works
The UK’s energy is supplied through pipes and wires owned by gas distribution and electricity distribution companies. These local grid companies in turn get their supplies of gas and electricity from high pressure or high voltage grids called transmission networks. The electricity transmission networks are owned in Scotland by Scottish and Southern (SSE) and Scottish Power, and in England and Wales by National Grid. The gas transmission network is owned by National Grid. See the map.
National Grid also owns the ‘system operators’ for the gas and electricity transmission networks that make sure power and gas is secure by balancing demand and supply.
All these companies are privately owned and financed.
The money they spend on running, maintaining or upgrading their networks is charged to consumers’ energy bills.
They must also invest in the network for the future, which they do by issuing bonds, taking out bank loans, using their profits from operations, or issuing shares to investors. They must pay interest on their bonds, and earn a return for their shareholders. This cost of finance is also charged to consumers’ energy bills.
In total these ‘network charges’ account for about a quarter of the energy bill, or about £250 a year.
Why Ofgem needs your views
In a competitive market, if a company charged too much money or didn’t provide good service, customers could just switch to another provider. However, network companies are monopolies, meaning that there’s only one in each area of the country.
It’s our job as the energy regulator to limit these monopoly companies’ charges, and set standards for quality of service through the price controls. Network companies are also essential to helping decarbonise the economy and enabling the UK to meet its target of net zero greenhouse gas emissions by 2050.
Ofgem has been very clear that it wants the next round of price controls to lower returns to save consumers money, whilst pushing companies to go further on decarbonisation and ensuring the UK retains one of the world’s most reliable energy systems.
It’s essential Ofgem hears a wide range of viewpoints and evidence from the people who use and pay for the UK’s energy network when setting the next price control.
Where can I find the plans?
All the companies’ business plans are linked in the ‘call for evidence’ guidance.
How can I respond?
This ‘call for evidence’ is now closed. Deadline for responses was Monday 10 February.
Tips for responding
- The Executive Summary in each document summarises the overall goals the company aims to achieve over the five-year period; what this will mean for the quality of service; how much they expect to spend to achieve these goals; and why the expenditure is necessary.
- Consumer or user challenge groups, composed of consumer champions independent of the companies, have given their response to the plans. This includes groups established by the companies, and one group established by Ofgem.
- You can find out more about these groups in the RIIO-2 stakeholder guidance document and page. You may or may not agree with these views, but their reports aim to identify what matters in the plans from the point of view of network customers and energy consumers.
- The navigation guide at the front of the plans will help you to understand how the plan is organised.
- In most cases, you will find a series of chapters or sections at the front end of the plans dealing with “outputs” - a way of describing and measuring the quality of service. We’ve asked companies to produce outputs to help achieve three goals:
- To deliver a high quality and reliable service to all consumers and network users, including those in vulnerable situations;
- To maintain a safe and resilient network that is efficient and responsive to change; and
- To deliver an environmentally sustainable network, which enables the transition to a smart, flexible, low cost and low carbon energy system.
Keep these three goals in mind, and consider how far the measures proposed by companies go towards achieving them, and where they could stretch further.
- Chapters that deals with “total expenditure” or “totex” detail the entirety of the money (running costs plus investment) networks think they need to spend to deliver their proposed outputs.
- Companies also present in the plans evidence of their ability to raise finance from investors at the level of returns proposed by Ofgem. They may disagree with our thinking that the returns should be set much lower, and put forward an alternative, potentially higher, set of figures.
What are Ofgem’s next steps?
Ofgem will draw on evidence companies’ business plans, challenge and user groups, the open hearings, our consultation process and from your views to help us set the price control.
We are holding regional public open hearings this spring, to enable stakeholders to directly challenge companies’ Business Plans.
Ofgem will consult on Draft Determinations on the Business Plans in July before making Final Determinations in November 2020.