As arguments about energy prices and profits continue to go round in circles, regular commentators are casting around for new targets in the drive to counter rising bills.
Tim Yeo MP, who returns as chair of the Energy and Climate Change Select Committee this week after being cleared of lobbying allegations, says it is the networks’ turn.
“Even the Daily Mail has not really pointed out what UK Power Networks does,” he told Energy UK’s annual conference earlier this month. “Because they don’t deal with consumers, they can get away with murder and I am afraid they probably do.” Ofgem, in his view, when faced with a monopoly “probably runs away and hides in a corner”.
That may not be how those working in the networks experience regulation, but whether he knew it or not, Yeo hit on the perfect time to air the discussion, at least when it comes to electricity distribution.
On Friday, Ofgem revealed its assessment of the distribution network operators’ (DNOs’) business plans for 2015-23. Under the RIIO regime, DNOs have had to consult customers more than ever before about their plans. In a rare bit of good news for energy consumers, they all offered price cuts in 2015/16, followed by broadly flat prices.
Ofgem was pleased. Senior partner Hannah Nixon told Utility Week: “All of the network companies responded well to the challenge we set them. We’ve seen some really innovative approaches, collectively cutting £2 billion from their cost base. This is a good news story and demonstrates that the RIIO process is working.”
To encourage DNOs to play ball, Ofgem had promised that ambitious and well-supported plans would get fast-tracked. True to its word, it granted Western Power Distribution (WPD), which covers a third of the country, a lighter touch, subject to consultation. WPD is offering price cuts ranging from £5.50 off the average household bill in the East Midlands to £26 in south Wales.
Robert Symons, chief executive of WPD, was low key about his company’s success. On request, he issued a somewhat muted statement saying only that he was “pleased with Ofgem’s recommendation”.
For her part, Nixon says: “I would love to be in a world where the majority of companies are being fast-tracked.” In the current climate, however, it was little surprise to the industry that Ofgem sent back the other business plans for more work, nor that cost was the area most plans were challenged on.
Some need more revision than others. Electricity North West (ENW) and Northern Power Grid only narrowly missed out on fast-track status, each getting “amber” for cost efficiency but green on the other four criteria.
Steve Johnson, chief executive of ENW, says: “We were obviously hoping for fast-track. We think we have got a fantastic plan and it looks like we only just missed out.” It is too early to say whether ENW, which put in the biggest price cut in the industry, will find further cost savings, says Johnson. “We need to sit down with Ofgem and understand what its concerns are.”
UK Power Networks, SSE Power Distribution and Scottish Power Energy Networks have more significant work to do, with red flags in a number of areas.
UKPN chief executive Basil Scarsella defended his plan, pointing out his networks have some of the lowest charges in the country. There is also a particularly strong need for investment as a result of very low capacity headroom combined with the fastest economic growth, particularly in the South East and London, he says. “It seems to be in our case that cost is an issue, but we are confident that when Ofgem understands our plans, our expenditure will remain pretty much as presented.”
While there is no shortage of people looking for another energy scapegoat, specific criticisms following the announcement were few. Even Labour, which is gunning for Ofgem, found no beef with RIIO. Shadow energy minister Tom Greatrex contented himself with threatening to force energy suppliers to pass on cost cuts to consumers.
The strongest concern came from Renewable UK, which said low levels of ambition for connecting distributed generation could threaten the UK’s 2020 target.
With all components of the energy bill coming under scrutiny, it is only right for DNOs to look hard at their spending plans. But if Yeo thinks he can find the political solution to rising bills in the networks, he too has more work to do.