26th Jun 2006 07:52
OFGEM26 June 2006 The Transmission Price Control announcement for OFGEM released today at 07:00 under RNS No 1331F has been re-released to facilitate onward transmission by third party vendors. The announcement is unchanged and is reproduced in full below. R/31 MONDAY 26 JUNE OFGEM PROPOSES INVESTMENT BOOST FOR BRITAIN'S ENERGY NETWORKS • More than £4 billion investment proposed in Britain's energy networks to connect renewables, gas import projects and to replace infrastructure • Impact on domestic customer bills will be limited as transmission costs only represent between 2 and 3 per cent of an energy bill • Proposals to reduce barriers preventing viable renewable projects getting connected • Investment will ensure customers continue to see high standards of reliability from the networks Britain's gas and electricity transmission* networks are expected to invest morethan £4 billion over the next five years following initial proposals publishedtoday (Monday) by energy regulator, Ofgem. This level of investment is required to meet consumer energy needs. It willenable the four companies which run the networks to adapt to change byconnecting more renewable energy and new gas import projects including pipelinesand terminals. The proposals are being made as part of Ofgem's review of theprices the four transmission companies are allowed to charge users of theirnetworks between 2007 and 2012. Ofgem Chief Executive, Alistair Buchanan, said: "Britain's energy networks facehuge challenges over the next five years to respond to changes in the sources ofour gas and power. A variety of import projects to bring gas from areas acrossthe world are being built and there are also proposals to greatly increase theamount of electricity sourced from renewables. "However, there is uncertainty about when projects may be completed and whereexactly investment is needed. Therefore, Ofgem is proposing price controls whichwill have significant flexibility to allow the companies to invest efficientlywhen necessary and in a way that best protects customer interests. Theinvestment will also mean the companies can continue to maintain Britain'senergy networks, which are among the most reliable in the world." The proposals may result in almost double the amount of investment in thenetworks that was allowed in the previous five-year price controls. Given thechallenges facing the energy networks, the price controls will also ensure thecompanies are able to make additional investments to connect viable gas importor renewable electricity projects when commitments from users demonstrate thisneed. The proposals also address the need for companies to replace infrastructure,particularly electricity network equipment, so that current high levels ofreliability can be maintained. The impact of the proposals on customer bills islikely to be minimal as transmission costs make up just three per cent of ahousehold electricity bill and two per cent of a household gas bill. -ends- * transmission networks are the high-voltage electricity network and highpressure gas pipeline networks which are used to move energy around the country. Notes to editors 1. Ofgem is reviewing the price controls for the four electricity and gastransmission companies which own Britain's high-voltage networks and the highpressure gas transportation system. The consultation process for the pricecontrol review will be completed at the end of this year, following thepublication of Ofgem's final proposals in December. The finalised controls willthen take effect from April 2007. The companies involved are: • National Grid Electricity Transmission (NGET) • National Grid Gas NTS (National Transmission System) • Scottish Power Transmission Limited • Scottish Hydro-Electric Transmission Limited. 2. The timeline for the remainder of the review is as follows: • June 26 2006: initial proposals • September 2006: Draft proposals • November 2006: Final proposals The agreed price controls will take effect from April 1 2007 until 31 March 2012 The initial proposals document has been published today on the Ofgem websitewww.ofgem.gov.uk 3. Capital expenditure As part of the review process Ofgem has carefully considered each company'sforecasted capital expenditure for 2007-2012 (ie the amount they wish to investin their networks to accommodate new renewable generation, gas import capacityand replacement of infrastructure). The table below summarises Ofgem's currentassessment of their spending requirements: National Grid National Grid Scottish Power Scottish Total Gas NTS Electricity Transmission Hydro-Electric Transmission Ltd Limited Transmission Limited. Ofgem's capital £737 million £2.791 billion £555 million £164 millionexpenditure proposalsfor 2007-2012 £4.25 billion Illustration of £750 additional investment millionto accommodate newpotential projects* Grand total £5.0 billion * As part of the review Ofgem is also proposing to introduce mechanisms toadjust the companies' revenue allowances automatically, either up or down, inresponse to the needs of users of the networks. There is uncertainty over whensome renewable generation or gas import projects will be completed. If theseprojects do go ahead then the price controls will allow the transmissioncompanies to make additional investments. A reasonable scenario of additionalprojects could result in total capital expenditure allowance for all fourcompanies of around £5 billion. 4. Cost of capital Cost of capital sets the allowed rate of return the companies can recoup whenthey invest in their networks. For modelling purposes, and to provide areference point for consultation responses, Ofgem has currently adopted a realpost-tax cost of capital of 4.2% for all four companies. Ofgem will notfinalise its view on the appropriate levels of return until the price controlfinal proposals in November. The 4.2% figure reflects several factors includinggenerally low real interest rates which make it cheaper for companies to borrowmoney to invest in developing their networks. 5. A further issue which will impact on Ofgem's price control review is theGovernment's Energy Review, which will set out Britain's future energy policy. 6. Ofgem is the Office of the Gas and Electricity Markets, which supports theGas and Electricity Markets Authority, the regulator of the gas and electricityindustries in Great Britain. Ofgem's aim is to bring choice and value to all gasand electricity customers by promoting competition and regulating monopolies.The Authority's powers are provided for under the Gas Act 1986, the ElectricityAct 1989 and the Utilities Act 2000. For further press information contact: Chris Lock: 020 7901 7225, 07766 511470Mark Wiltsher: 020 7901 7006, 07774 728971Julia Collings: 020 7901 7217 This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
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