22nd Nov 2013 12:34
LONDON (Alliance News) - UK energy regulator Ofgem has challenged five out of six of the UK's energy distribution companies to improve their cost cutting strategies for consumers, a move that comes amid a wider outcry about soaring energy bills.
Ofgem sent back plans from five companies that own and operate Britain's local energy network on Friday, saying they do not sufficiently represent value for money.
The regulator said that of the six companies which provide distribution, only Western Power Distribution's business plan provides good value for customers and its price control could be agreed early.
Ofgem said that in Western Power's areas, price regulation will see distribution costs cut 11.6%, or GBP11.30, for nearly 8 million households from April 2015.
Distribution accounts for about 19% of the GBP610 average annual domestic electricity bill, Ofgem says.
While Ofgem said that all companies have responded well to its RIIO price control strategy, which it claims has driven over GBP2 million in savings so far, it said that "most companies can go further in cutting their costs."
RIIO, which means Revenue equals Incentives plus Innovation plus Outputs, is Ofgem's new performance-based model for setting the network companies' price controls. The regime will last eight years and is designed to develop cost reduction and commitment to a low carbon economy as the key drivers for the industry.
The six companies that own and operate Britain's electricity network have to submit their business plans for the next price control period - 2015 to 2023 - to Ofgem for approval, because the 14 different regional distribution networks are monopolies and not open to competition.
The six companies are Western Power, Electricity North West, Northern Powergrid, UK Power Networks, SP Energy Networks and SSE Power Distribution, a subsidiary of energy giant SSE PLC.
Northern Powergrid and Western Power are owned by a US energy giants, Electricity North West by a consortium of banks, UK Power Networks was bought by a Chinese firm from energy giant EDF in 2010, while SP Energy Networks is owned by Scottish Power and Spain's Iberdrola.
"We are pleased that nearly all companies have pledged to cut bills, but we feel that most companies can go further in cutting their costs and expect to see further improvements when they resubmit their plans in March," Ofgem's Senior Partner for Distribution Hannah Nixon said in a statement.
Five of the big six UK energy suppliers have raised prices in recent weeks, with E.ON expected to follow in the coming weeks. They've blamed a combination of higher wholesale prices, rising costs for maintaining infrastructure, and the cost of the government's green energy taxes.
Energy prices are turning into a political football ahead of the next election. Dwindling household budgets are set to become one of the main features of party campaigns as wage growth remains low while things like energy prices increase at rates well above inflation.
The increases have prompted a storm of protest from consumer groups, and politicians of all parties. The protests were stoked when Ofgem said that wholesale prices have risen by less than the rate of inflation and that its data suggests that wholesale electricity and gas together have risen by just 1.7% over the last year.
UK Prime Minister David Cameron recently announced a review of energy pricing and competition in the commons, while the Conservative leader has also pledged to cut green taxes next year.
Opposition leader Ed Miliband has said Labour will freeze energy prices for two years if it is elected to power in 2015, prompting energy companies to warn that they may not be able to fund investments and warnings from critics who say companies may raise prices even more ahead of any freeze.
By Tom McIvor; [email protected]; @TomMcIvor1
Copyright © 2013 Alliance News Limited. All Rights Reserved.
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