The energy regulator has set out proposals to cut spending allowances for distribution network operators by £206.8 million over the remainder of the RIIO-ED1 price control.
The adjustments are possible, Ofgem argues, because electricity distribution companies underspent their allowances during the previous price control – DCPR5 – which ended 31 March 2015.
Ofgem identified extensive underspends in reinforcement, due to lower than expected demand or because smarter, less costly, methods for ensuring reliability were discovered.
Ofgem’s review of DNO spending followed an announcement from National Grid in March this year that it would voluntarily defer £480m of its allowed expenditure for transmission projects in RIIO1.
National Grid’s deferral will initially reduce network charges on energy bills by around £100 million between 2019 and 2021 – the benefits will be enjoyed by both domestic and non-domestic consumers.
Ofgem hopes that its additional reductions to RIIO-ED1 spending allowances will enhance these savings. It believes around half of the £206.8m cuts will be returned to consumers over a 20-year period. The exact amount will depend on a variety of economic factors.
In its review of DNO spending in DCPR5, Ofgem concluded that £74.6m could be struck off the spending allowances for Western Power Distribution, Scottish Power, UK Power Networks (UKPN) and SSE as a result of low demand deferring the need for reinforcement.
Ofgem also identified that a number of major schemes – individually worth £15m or more – were cancelled by DNOs in the last regulatory period. Consequently, Ofgem has suggested spending allowance reductions totalling £132.2m be applied to Western Power Distribution’s East Midlands network and two of UKPN’s networks.
Explaining its proposals, an Ofgem spokesperson said the regulator is “determined” to ensure consumers continue to get the best possible deal from their energy networks, “both in terms of service and value for money”.
They continued: “Where network companies do not need to invest all the money allocated to them, consumers should benefit through reduced network charges on energy bills, as we have announced today. We will continue to monitor network companies to make sure that any reductions in their spending result in savings on consumers’ energy bills.”
DNOs have until 14 August to respond to Ofgem’s plan. The regulator will make a final decision in September.