30th Jul 2014 08:06
LONDON (Alliance News) - SSE PLC Wednesday said it is "disappointed with a number of elements" in the UK energy market regulator's decision to force its subsidiary Scottish and Southern Energy Power Distribution to significantly reduce prices for its customers while helping to upgrade the UK's electricity network.
The UK energy regulator Ofgem on Wednesday set out its proposed price-control settlements for five of the six companies that run Britain's local electricity network, forcing the companies to spend GBP17 billion to upgrade and maintain the network.
Ofgem said that at the same time, the local network based part of customers energy bill, around 8% of the annual dual fuel bill, will be, on average, GBP12 a year lower for the eight years in which the new controls would be fixed, from April 2015 until 2023.
Last November, after reviewing the local electricity distributors price control planned for the coming years, Ofgem said that only Western Power Distribution has a business plan which showed value for customers. As such, the plans of UK Power Networks, Northern Power Grid, SP Energy Networks, SSE Power Distribution and Electricity North West were sent back.
The regulator said that since then GBP2.1 billion has been cut from the plans, GBP700 million by the companies and a further GBP1.4 billion by Ofgem following analysis and benchmarking of costs.
Ofgem said it has challenged the companies to improve customer service and take a more active role in helping vulnerable customers. It added that companies have responded well and plan to improve their help to vulnerable customers, for example during power cuts.
The regulator added that it has also sharpened targets to help new customers, such as businesses, new renewable generation and housing developments, get connected to the network faster.
"As energy regulator, a core part of our role is to set price controls for these monopoly network companies. This is the only part of the energy bill Ofgem directly controls and our plans today will deliver better customer service and efficient investment at a lower cost for the customer," Ofgem Chief Executive Dermot Nolan said in a statement.
The FTSE 100 listed UK energy supplier SSE said on Wednesday that it is disappointed with certain elements of the proposals including Ofgem's efficient financing plans and "assumptions about the scope of further cost reductions across the industry".
SSE said that over the coming weeks Scottish and Southern Energy Power Distribution will be reviewing the benchmarking analysis and how it could operate and develop its networks to the standard customers expect with the proposed cut in total expenditure.
"Our aim is to deliver a final settlement that both provides value for money for customers as well as securing the funding required to operate and develop our distribution networks for customers benefit," SSE Finance Director Gregor Alexander said in a statement.
"Through the established price control process, we will now be responding to the draft determination as well as engaging further with Ofgem in order to secure this outcome," Alexander added.
The news comes a week after SSE and UK Power Networks have been forced to pay out a further GBP3.3 million in compensation relating to performance during storms last Christmas, bringing the total compensation payments to GBP8.0 million.
Ofgem forced the companies to pay out the compensation after an investigation which found that both companies could have done more to get customers reconnected faster and to keep them better updated on what was happening. As such, the power supplier and power distributor have made the new compensation payments as donations to organisations such as the British Red Cross, which played a key role in helping vulnerable customers during power cuts and severe weather.
The regulator also announced last week that it was raising the minimum payment per customer to GBP70 from GBP27 for those who go at least 24 hours without power, in an attempt to further strengthen incentives for companies to act quickly and reconnect customers as soon as possible.
Ofgem said the new rules come into play in April 2015 and also include substantially increasing the cap for payments made to customers to GBP700 from GBP216.
Earlier this year Ofgem referred the UK energy market to the Competition and Markets Authority for a full investigation, asking it to investigate the barriers to competition inherent with the "big six" suppliers, on June 26.
The regulator proposed the investigation in March, saying that the market needs a market investigation "to clear the air", with the investigation expected to reassure consumers and complement Ofgem's reforms for a simpler, clearer and fairer energy market.
Ofgem added in June that it expects the CMA to look at the relationship between the supply business and generation arms of the six main suppliers, to study the barriers to entry and expansion for suppliers and the profitability of the "big six".
The Big Six energy firms are Centrica PLC owned British Gas, E.ON, EDF, Npower, ScottishPower and SSE PLC.
Energy prices have become a contentious political issue of late, with bill increases toward the end of 2013 blamed on a combination of higher wholesale prices, rising costs for maintaining infrastructure, and the cost of the government's green energy taxes.
In December, UK Chancellor George Osborne announced that customers of the Big Six energy companies would see an average GBP50 reduction in their bills based on reductions in green and social levies.
Prime Minister David Cameron later announced a review of energy pricing and competition in the Commons, coupled with a pledge to cut green taxes next year.
Opposition leader Ed Miliband has said Labour will freeze energy prices for two years if 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.
SSE shares were down 0.1% to 1,470.86 pence on Wednesday.
By Tom McIvor; [email protected]; @TomMcIvor1
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