They came out in favour of Ofgem’s proposal to cut allowed returns to shareholders in distribution networks from 6.3 per cent to 5.5 per cent.
The change is expected to shave £2 a year off the typical household bill, at a cost of £400-£500 million to the industry over the eight-year RIIO-ED1 price control. Transmission and gas distribution networks are also likely to take a hit at their next periodic review, if the new approach is adopted.
Richard Hall, director of strategic infrastructure at Consumer Futures, said monopoly utility stocks are “as close to risk-free as you can get whilst investing in equities”. Accordingly, investors should be willing to accept a low rate of return, he argued.
Centrica commissioned research from consultancy CEPA into the impacts of the proposal. It supported the change, arguing Ofgem had been overly generous in the past. Andy Manning, Centrica head of network regulation, said: “We want fair value for our customers at every part of the chain.”
The proposed approach would give more weight to recent evidence in calculating the cost of equity allowance, in line with a Competition Commission provisional ruling on NI Electricity.
Distribution network operators and National Grid have yet to publish their consultation responses. A National Grid spokesperson indicated the company would argue Britain is different to Northern Ireland and Ofgem should continue with its long-term approach.