Northern Gas Networks (NGN) has published its draft business plan for the RIIO2 price controls, as part of which, the gas distribution network has proposed to spend roughly £1.25 billion over the five-year settlement period beginning in 2021.
This equates to an average yearly spend of £249.9 million, compared to £238.3 million over the first six years of the current settlement period.
The rise would mainly be the result of increased expenditure on its iron mains replacement programme, which would swell from £96.5 million to £106 million per year.
Capital expenditure in other areas would drop from £57 million annually to £54.8 million. NGN said network investment is expected to fall, partly because it has already tackled many of its poorest performing assets, but also because its analysis has suggested it will be more cost effective to maintain rather than replace some of the others. It also expects non-network investment to decrease
However, this strategy of extending the lives of some assets would also contribute to an increase in an operational expenditure from £84.8 million to £89 million per year. So too would the completion of its gas holder demolition programme, although they would both be partially offset by a reduction in leakages.
In total, NGN has proposed around £804 million of capital expenditure and £445 million of operational expenditure over the full five years.
Despite the increase in spending, the yearly revenues it received would fall by £34 million as a result of Ofgem’s proposed reduction in the allowed cost of equity – the baseline profit margin for shareholders. Its average contribution towards annual household bills would drop from £139 to £127.