Ofgem has welcomed a move by Western Power Distribution (WPD), an electricity distribution network operator (DNO) to voluntarily return £77 million of its price control funding to consumers.
This follows the Government’s decision to reduce its rail electrification programme, meaning WPD no longer needs the funding to carry out related projects.
Ofgem has decided not to open a mid-period review of the 2015-2023 electricity distribution price control as it can drive value for money for consumers more effectively through a combination of efficiency gains and voluntary contributions.
WPD’s move and a commitment by all other DNOs to absorb the costs of projects (currently estimated by the DNOs at over £600m) will help drive forward the move to a smarter, more flexible energy system.
Reopening the electricity distribution price control could risk pushing up the cost of finance for the companies, and risk increasing energy bills at a time when the network costs part of household energy bills has been stable for several years.
WPD’s £77m voluntary return is in addition to the £5 billion in savings that Ofgem’s regulation has secured for consumers since 2013, as part of the ongoing price control process. This includes voluntary contributions from gas distribution and energy transmission companies.
Network companies need a licence to operate from society at large, as well as Ofgem. WPD’s move is important as consumers need to be confident that they are paying a fair price for network services.
Jonathan Brearley, executive director for systems and networks, said: “Our regulation will ensure that consumers continue to share in any savings the companies make in the remainder of the price controls. We will continue to monitor their performance and we have powers to make adjustments to their revenue if we find that targets have not been met, once the price control finishes.
“We would also welcome moves by other DNOs to voluntarily refund consumers, particularly if a change in circumstances means they have surplus funding that is no longer needed.”
Ofgem has told the networks to prepare for tougher price controls from 2021 onwards with lower expected returns. The tougher approach is expected to deliver savings of over £5 billion to consumers, as a result of our stable and predictable regulatory framework.