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Ofgem proposes new price controls for network operators

The sun rises behind electricity pylons near Chester, northern England October 24, 2011. REUTERS/Phil Noble

By Nina Chestney

LONDON (Reuters) - Britain's energy watchdog has proposed new price controls for five electricity network operators for the next eight years, aiming to spur investment in network upgrades and help lower energy bills.

The new electricity distribution price controls, which will run from April 2015 to 2023, will encourage the network companies to spend 17 billion pounds to upgrade and maintain Britain's electricity network, regulator Ofgem said in a statement on Wednesday.

Price controls set the amount of money that can be earned by the companies which operate Britain's network operators over a set period of time. The firms recover their allowed revenues by charging suppliers, who in turn pass on the costs to customers.

Current price controls expire on March 31, 2015.

Ofgem says price controls are needed as Britain's electricity networks are natural monopolies and there is no realistic way of introducing competition across the whole sector.

The measures will also lower energy bills, Ofgem said. Distribution costs account for 8 percent of an annual "dual fuel" bill covering gas and electricity and this part of the bill will be on average 12 pounds a year lower than currently for the eight-year period of the price control.

"During the course of the price control there is expected to be an increased take-up of low-carbon technologies including heat pumps, solar panels and small-scale renewable generation," said Dermot Nolan, Ofgem chief executive.

"Ofgem’s regulation focuses companies’ attention on connecting these low-carbon technologies in a timely and cost-effective way, using smart solutions where appropriate," Nolan added.

The proposals will be consulted on for the next eight weeks and a final decision will be made in November.

Ofgem said it returned five companies' business plans to them last November for the period 2015 through 2023 because they failed to deliver enough value for customers.

The companies were UK Power Networks [EDFIBG.UL], Northern Power Grid [MDPWES.UL], SP Energy Networks, SSE Power Distribution and Electricity North West [NRWETY.UL].

Since then, a total of 2.1 billion pounds was cut from the business plans. The companies identified 700 million pounds of savings and Ofgem refused a further 1.4 billion after a cost analysis.

Western Power Distribution [PPLXMF.UL] [PPLXWP.UL][PPLXTS.UL] was the only company which had its price control agreed last year after Ofgem said its business plan offered enough value for customers.


(Editing by David Holmes)