Ofgem takes harder line on networks after allowing bumper profits


Ofgem boss Dermot Nolan says regulatory change is coming.Ofgem has proposed a much tougher price control for energy networks. The regulator has come under fire after suggestions its current framework has allowed networks to make excess profits at the expense of consumers.

Ofgem boss Dermot Nolan acknowledged that assertion within the consultation, stating “returns across companies have been higher than we expected and do not reflect the low level of risk these companies face.”

As such, the regulator proposes a lower cost of capital (3-5%) and potentially a five-year control rather than the current eight. It also plans to set up independent user and consumer engagement groups to challenge companies’ plans.

Meanwhile, Ofgem also intends to open up more of the networks traditional monopoly business to competition and seeks views on how to facilitate that.

The consultation also asks for views on how network innovation funding can be reformed to focus on system-wide benefits and to potentially bring third parties into scope.

Responding to Ofgem’s publication, the Energy Networks Association, which represents the interests of pipes and wires firms, said maintaining innovation incentives was “critical” to decarbonisation goals and called for “balanced, stable and transparent regulation” to maintain investor confidence.

Respond to the consultation here by 2 May.

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