20 May 0
The Competition and Markets Authority has granted permission to Northern Powergrid and British Gas Trading to appeal against Ofgem’s price control decision for electricity distribution companies.
The Regulator, Ofgem, sets price controls for the companies that operate the UK’s gas and electricity networks. The appeal is in relation to the setting of transport electricity to homes and companies for domestic and commercial use for the period 2015 to 2023.
Gas transmission accounts for around 2% and electricity transmission around 4% of the bill; gas and electricity distribution accounts for around 16% of the bill. As the networks are natural monopolies, price controls are required to ensure that the companies recover revenue at a reasonable level. Price controls are a method of setting the amount of revenue that can be earned. These costs are charged to suppliers that pass these costs through to customers. The revenues should be set at a level which covers the companies’ costs and allows them to earn a reasonable return subject to them delivering value for consumers, behaving efficiently and achieving their targets as set by Ofgem.
Whilst Northern Powergrid’s appeal relates to its business case for the recovery of revenue, British Gas Trading is concerned that the Price Controls may perpetuate the historical issue of revenue achieved by the network operators for the gas and electricity sectors, substantially exceeding the regulated cost of equity. On 23rd February 2015, the House of Commons Energy and Climate Change Committee concluded that the price controls are too generous and called on Ofgem to put more pressure on the networks to limit their costs and provide better value for consumers.
The CMA will appoint a group of panel members to examine the appeals.