Ofgem announces £17 billion new investment package and reduces pressure on customer bills

Publication date
28th November 2014
Information types
Policy areas
  • £17 billion to renew, maintain the electricity network and connect small-scale renewable generation
  • £2.1 billion of savings achieved since Ofgem sent back companies’ initial business plans last year
  • Ofgem expects companies to meet tough targets on further improving reliability, customer service, connections, and their work with vulnerable consumers
  • Electricity distribution part of bill to fall by an average of £11 over next eight years

Ofgem has today set out plans for five out of the six companies that run Britain’s local electricity network.

This decision will see the companies spend around £17 billion to renew, maintain the electricity network and connect small-scale renewable generation. Taken together with Western Power Distribution which had its price controls agreed early, the total spend on Britain’s local electricity network over the next eight years will be £24 billion.

There have been minimal changes since July’s draft decision and today’s announcement represents a reduction of £2.1 billion since Ofgem sent back initial business plans last November.

Ofgem has set challenging targets for all companies to continue improving reliability, speed up new connections to the network and increase their work with vulnerable consumers. In addition, from the start of these price controls in April 2015, payments for customers who experience prolonged power cuts will increase, and more than double from £27 to £70 for those without power during severe weather.

Ofgem expects companies to realise around £900 million of benefits to consumers over the period as a result of Ofgem’s innovation stimulus, the Low Carbon Network Fund is running from 2010-2015. This has helped companies adapt the network to make it work better, and cope with the expected increase in small-scale generation, such as the use of solar panels.

The work these companies do accounts for around £100 of your annual electricity bill. Our announcement today will see this part of the bill deliver an average annual saving of £11*. Including Western Power Distribution, which had its controls agreed early, the average bill will be £10 a year lower than it is today for the eight-year period of the control.

Dermot Nolan, chief executive at Ofgem, said: “Today’s plans represent good value for consumers. There will be significant investment in Britain’s electricity network, and reduced pressure on bills. Ofgem expects network companies to step up and take a more visible and active role in helping customers, particularly the most vulnerable.”

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Notes to editors

*Ofgem’s overall assessment is relatively unchanged since draft determinations. However, since draft determinations there has been an audit of pension liabilities. The pension liability is outside Ofgem’s control and must be factored in to the network companies’ business plans. Government rules state that network companies have to fund defined benefit pension schemes that were established before privatisation. These schemes are closed to new members but have liabilities for the future pensions of the schemes’ members. The government rules state these liabilities must be provided for through the price controls.

The change to pension liabilities has the effect of lowering the estimated bill reduction over the price control period. In July’s draft determinations we estimated a bill reduction of £12, excluding Western Power Distribution (WPD). This figure is unchanged as a result of our final determinations but taking account of pensions the projected savings are £11, or £10 including WPD.

1. Electricity Distribution Price Control (RIIO-ED1)

View our consultation: RIIO-ED1: Draft determinations consultation for the slow-track electricity distribution companies

There is more information on how price controls work in our factsheet: Price controls explained and, specific to the RIIO-ED1 price control, in our infographic: How Ofgem's proposed network price control (RIIO-ED1) will affect you.

There are 14 different distribution networks (DNOs) in Britain. These are regional monopolies and customers rely on regulation by Ofgem, rather than competition, to get the service they require at a reasonable price. In the price control review, we set the total revenues that DNOs can collect from customers and we place strong incentives on these companies to innovate and find new ways to improve their efficiency and quality of service. The electricity distribution price control review (known as RIIO-ED1) sets the revenues for the eight-year price control period.

RIIO and next steps for RIIO-ED1

Revenue=Incentives+Innovation+Outputs (RIIO) is designed to incentivise companies to meet the unprecedented challenges they will face during the next decade: to find over £30 billion of investment needed to meet environmental targets and secure energy supplies, while delivering long-term value for money for consumers.

Ofgem requires companies to develop a well-justified business plan. They submitted initial drafts in July last year, with the possibility for companies to get early approval. The potential to be ‘fast-tracked’ drove all the DNOs to raise their standards with savings of £2 billion compared to initial forecasts in 2012. After a rigorous assessment process, Ofgem concluded that only Western Power Distribution (WPD)’s plan offered good value for consumers and it was fast-tracked in February 2014. We asked the remaining five network companies to submit their revised plans in March this year.

The current price control expires on 31 March 2015 and the RIIO-ED1 price control will run from 1 April 2015 - 2023.

2. Business plan comparisons

(£m 2012-2013 prices) First Business Plan Revised Business Plan Ofgem DD Allowance Ofgem FD Allowance

%Diff.

(FD vs. DD)

Electricity Northwest (ENW) 1,900 1,876 1,794 1,825 +1.7%
Northern Powergrid 3,224 3,173 2,928 2,959 +1.1%
UK Power Networks (UKPN) 6,726 6,617 5,995 6,029 +0.6%
SP Energy Networks (SPEN) 3,960 3,487 3,206 3,186 -0.6%
Scottish and Southern Energy Power Distribution (SSEPD) 3,720 3,635 3,398 3,456 +1.7%
Total 19,531 18,788 17,321 17,455 0.8%

For further press information contact:

Lisa O’Brien: 020 7901 7426
Dafydd Wyn: 020 3263 9943
Out of hours media contact number:  07766 511470