CMA backs Ofgem cuts to energy network returns
The competition watchdog has today ruled in favour of Ofgem’s plans to slash returns for investors in the UK’s energy network.
In its provisional ruling, the Competition and Markets Authority (CMA) knocked back the appeals of several of the country’s biggest energy suppliers, but acknowledged that the energy regulator had erred in some areas.
It said that there was no problem with how Ofgem calculated how much return networks could pay their shareholders to compensate them for the risk of investing in the UK’s infrastructure.
That is despite companies such as National Grid warning that such a cut, which will remove £20 from consumers bills, risk discouraging investment in the network.
However, it added that Ofgem had made mistakes in the way it calculated some of the money that networks will be allowed to charge households over the next five years.
Companies said that this so-called “outperformance wedge” was “unnecessary, poorly targeted, had been applied in an arbitrary and discriminatory way, and would undermine performance improvements and investment incentives, including by increasing regulatory risk”.
Ofgem chief executive Jonathan Brearley said: “We welcome today’s provisional announcement by the CMA as an important step forward towards this goal.
“The CMA has found in favour of Ofgem on most grounds of appeal, including the reduction in returns for investors.
“We will continue to engage with the CMA to finalise these price controls, and look forward to working with the industry to deliver efficient investment which will benefit both consumers and the planet.”
National Grid said: “We are pleased to note that it has found in favour of the technical arguments on the outperformance wedge, although we are disappointed that it has not found in favour on the cost of equity.
“We will now review the detailed documents to determine the CMA’s rationale for this provisional determination and will be responding within the statutory timeline.”
The CMA will make its final judgement on the case in October.