Watchdog backs regulator’s plan to reduce UK energy firms’ returns

CMA sides with Ofgem on protecting consumers by capping cable and gas pipe investment returns

Last modified on Wed 11 Aug 2021 06.12 EDT

The competition watchdog has sided with Great Britain’s energy regulator after an industry rebellion over a clampdown on the returns energy network companies can make at the expense of customer bills.

The Competition and Markets Authority (CMA) received multiple appeals from energy companies, including National Grid and Scottish Power, earlier this year after Ofgem set out plans to limit their returns on investing in the UK’s gas pipes and electrical cables.

Jonathan Brearley, Ofgem’s chief executive, said the regulator was “fully focused on keeping bills as low as possible for customers” while supporting the investment needed to create a green energy system, and the CMA’s ruling was “an important step forward towards this goal”.

“The CMA has found in favour of Ofgem on most grounds of appeal, including the reduction in returns for investors,” Brearley said. “We will continue to engage with the CMA to finalise these price controls, and look forward to working with the industry to deliver efficient investment which will benefit both consumers and the planet.”

The industry revolt began brewing last summer when Ofgem set out its initial plans to halve the returns allowed on investment in the UK’s transmission cables and gas pipes to protect household energy bills. The multibillion-pound investments are paid for by energy consumers, and typically make up one fifth of the average household energy bill.

Ofgem softened its stance at the end of last year by raising the energy company’s allowed returns on investment from its original proposal of 3.95% to 4.3% for the next five years, but the rate was still the lowest ever proposed for a regulated network company, and well below the 5.6% suggested by National Grid.

A spokesperson for National Grid said the FTSE 100 energy firm was disappointed by the decision to uphold Ofgem’s proposal to reduce the cost of equity it assigned to energy network investments. “We will now review the detailed documents to determine the CMA’s rationale for this provisional determination and will be responding within the statutory timeline,” National Grid said.

The CMA’s final determination on the issue is scheduled to be made by October.

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