National Grid gets shock as Ofgem lowers cap on shareholder payouts
Ofgem will slash the amount of money network providers can pay to their shareholders under plans announced today, a move which it said could save customers around £45 a year.
In an announcement which sent National Grid shares down over nine per cent to 759p, the regulator said it would set the baseline returns at four per cent, around half of the current levels.
Networks can still pay out more than four per cent if they deliver on Ofgem’s customer service and power cuts targets.
The proposal is expected to save consumers around £6.5bn from 2021 onwards.
The move has been praised by Citizens Advice for pushing down bills, but businesses in the sector pushed back.
National Grid, the largest network company in the UK, said it was “disappointed with the proposed financial package, in particular the cost of equity range”.
The FTSE 100 firm said it does not believe the risks its investors take are properly reflected by the new baseline.
The Energy Networks Association said: “As things stand, the proposals could jeopardise the innovation and investment that is critical to delivering these important outcomes. Britain’s people and businesses risk missing out.”
Industry insiders told City A.M. the firms are worried that the proposals will reduce investment at a time when the industry needs to adapt to new technology. Companies are expected to invest around £45bn over the next five years in efforts to modernise and decarbonise the grid.
However, consumer groups backed the Ofgem plans.
Gillian Guy the head of Citizens Advice said that the businesses have “had it too good for two long,” and that the proposals would put more money back in users’ pockets.
“It is vital now that Ofgem continues to hold its nerve in the face of the inevitable push back from industry,” Guy said.
The regulator is expected to make a final decision in December 2020.
Jonathan Brearley, Ofgem’s executive director for systems and networks, said: “We want to cut the cost to consumers for accommodating electric vehicles, renewables and electricity storage, and make sure that all consumers benefit from these technologies.
“This will mean driving a harder bargain with network companies to ensure that households who need it always have access to safe and secure energy at a fair price.”