Ofgem has confirmed that it will slash £200m from distribution network operators’ (DNO) spending allowances over the remainder of the RIIO-ED1 price control.
The regulator says the savings are possible because DNOs underspent their allowances in the previous price control.
Confirming the cut, first mooted in June, Jonathan Brearley, Ofgem’s senior partner for networks, said: “We have already told network companies that they should prepare for tougher price controls from 2021, with lower returns.
“We also want to get a better deal for customers in the current price control period which is why we have announced a reduction in the DNOs’ allowances today. This is in addition to savings of over £4.5 billion for customers. These result from other action we have taken to reduce revenues in the current price controls, or voluntary contributions from some companies.”
The regulator said some planned reinforcement work for the 2010-2015 price control period did not have to take place because electricity demand was lower than expected. To reflect the savings, it has cut £74m from the allowances for Western Power Distribution (WPD), Scottish Power, UK Power Networks (UKPN) and SSE.
It said some DNOs also cancelled major investment projects worth £15 million or more, and have spent less than expected on others. To reflect this, Ogem has cut allowances by £130 million across WPD’s East Midlands network and two of UKPN’s networks.
Ofgem has recently consulted on the framework for the next regulatory settlement, RIIO-2. It has warned networks to expect a tougher price control, amidst accusations that the businesses are making “excessive profits.”