Ofgem permits £12 energy bills rise for grid upgrade

Pylons The investment programme will hook up new wind and nuclear generators to the grid and run more high voltage cables underground, among other things

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The energy regulator will permit firms running the UK's electricity and gas grids to add an average £12 to annual energy bills for the next eight years to pay for upgrades and maintenance.

Ofgem said it had cut £7bn from the total cost of work on UK transmission networks planned by energy firms.

The biggest of these firms by far - National Grid - said it was reviewing the "lengthy and wide ranging" plans.

Meanwhile a lobby group warned 300,000 more homes faced imminent fuel poverty.

Energy prices have risen 7% on average this year, according to the Fuel Poverty Advisory Group, and are set to leave more households paying more than 10% of their income on home heating unless the government takes action.

Tax change

Ofgem's announcement will enable £24bn in total investment in the energy networks up until 2021.

However, an Ofgem spokesperson told the BBC that over half of the £12 bill increase was not due to physical investment in the network, but was instead because of a change in accounting rules which would mean that energy firms could no longer claim back tax on the cost of replacing parts of the network.

The regulator's announcement represents a slight increase on the £22bn investment allowance that Ofgem initially proposed in July - adding an average £11 to bills - which was attacked by National Grid for being insufficient.

What is fuel poverty?

A domestic gas fire

A household is considered to be in fuel poverty if more than 10% of its income is spent on home heating.

"In analysing the proposals, we find numerous errors and questionable judgements which we cover in detail in our response," the company had said of the initial plans in an open letter to Ofgem.

Under Ofgem's revised proposal, the average increase in annual bills between 2013 and 2021 will equal £12, starting close to £8 at the beginning of the period, and rising to £15.10 by the end.

If National Grid chooses to challenge Ofgem's new decision, it has until March to refer the matter to the Competition Commission.

National Grid and the distribution firms do not charge households directly for the cost of maintaining the grid, but the cost is instead passed through by electricity and gas suppliers.

The total cost of transmission and distribution comprises about 21% of gas bills and 10% of electricity bills.

Underground cables

Ofgem said that the increase in allowances compared with their July proposal was because the regulator had agreed to let gas network firms charge more for the cost of replacing gas mains.

Energy Secretary Ed Davey: "The big drivers on energy bills are wholesale and network costs"

National Grid operates the UK's national electricity and gas grids, as well as four of the country's eight regional gas distribution networks.

The electricity network in Scotland is owned by two other firms - Scottish and Southern and SP Energy Networks.

Ofgem had already reached an agreement with the Scottish firms in March over their investment plans, the cost of which will contribute £3.70 of the £12 average bill increase, to be borne equally across all UK households.

The planned investment spending across the UK is split between £15.5bn on electricity transmission and distribution, and £8.7bn on gas.

The investments will, among other things, hook up new wind farms and nuclear power stations to the electricity grid to replace traditional coal-fired power stations, and enable more liquefied natural gas imported from Qatar and elsewhere to be added to the gas network as North Sea gas supplies dwindle.

Other improvements will include the running of new and some existing high voltage cables underground, particularly where they affect areas of outstanding natural beauty, and the construction of a new undersea link connecting Scotland with England and Wales.

The spending on the gas network will also finance spending by the energy firms on raising public awareness about the risk of carbon monoxide poisoning.


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  • rate this

    Comment number 397.

    So what are these companies doing with their profits?I would have liked to have seen an explanation by OFGEM of why their profits are not enough for infrastructure investments. I certainly havent heard them making a loss recently.
    I suppose we really have no choice, they have us all by the testicles as we simply cannot live without electricity. We have to pay up!

  • rate this

    Comment number 396.

    You can't beat a nice mixture of communism and capitalism. It's the way forward alright.

  • rate this

    Comment number 395.

    Looks interesting..... I'm going to give it an assessment.....

  • rate this

    Comment number 394.

    Taking the energy companies back into Govt control would be a bad idea. Competition brings prices down and ensures customers have a choice, yes energy bills have risen alot in recent years, but that is down to the Wholesale pricing. The UK needs to invest in new sources of energy production and stop buying from abroad...

  • rate this

    Comment number 393.

    In an interview on Sky today, Ed Davey said that wholesale gas costs have risen sharply since 2007. Pull up a chart of Natural Gas futures Mr Davey and you will find that the price of natural gas has FALLEN sharply from around $8 to just over $3.
    We only have ourselves to blame for voting for these thieves.

  • rate this

    Comment number 392.

    @392 Good budgeting will mean most can afford it. But the whole thing is a slap in the face for us.

    These companies post record profits year after year, yet when it comes to updating, replacing and building new infrastructure.. they get us to subsidise their shareholders instead of doing the responsible thing and using their profits.

  • rate this

    Comment number 391.

    382.Roberto Gomez Bolanos
    I take it you're one of those whinging lazy bones shareholders. Shame on you!

  • rate this

    Comment number 390.

    And here I am thinking the reason they were fragging so the almost inexhaustible gas could be got out the ground.

  • rate this

    Comment number 389.

    Because the energy companies don't make enough profit to fund this do they?

    Ofcom is just like all the other OFdepartments, a complete waste of space and money. They should be busting this cartel, not taking the easy option again.

    The energy companies cream off all the money and we end up having to subsidise the network after years of under investment - Thatcherism at its finest!

  • rate this

    Comment number 388.

    Time to wake up people!

    We need to ACT COLLECTIVELY and start BOYCOTTING these companies en masse.

    If everyone decided to boycott say EDF for a period of 6 months how long do you think it would take for their prices to drop dramatically?

    People power really can be the answer and I have every intension of putting this in place very shortly.

  • rate this

    Comment number 387.

    Am I the only one being hit with a 70p A DAY standing charge for having electricity delivered to my door whether I use it or not? What gives with a further £12 for anything.

    I hate all the energy companies but I hate the government more for allowing them to rob me blind, cold and helpless.

  • rate this

    Comment number 386.

    Is it suprising we the consumer has to pay for the upgrade so the company profit stays the same for directors bonus.We have sold everything we once owned so we are bound to get fleeced.We waste millions on wind turbines etc with subsidy and they need the right weather to work but the consumer pays so goverment has no worry thiers goes on expenses so we pay again

  • rate this

    Comment number 385.

    Hey tell SID! Its all gone t*ts up!

  • rate this

    Comment number 384.

    Sorry I meant OFGEM not OFCOM in #265 though they are both useless and anti-public.

  • rate this

    Comment number 383.

    well this just goes to show you that a competitive market gives the customers best value for money and lowest prices. I mean what kind of idiot would stay with a company who puts their shareholders before their customers. it would be economic suicide.

  • rate this

    Comment number 382.

    Seriously it's just £12 a year, sounds like a good deal to me.

    If you can't afford it, stop beings a whinging lazy bones and do a paper round for one week.

    Problem solved.

  • rate this

    Comment number 381.

    i will worry about the environment and green issues when i can afford it . at the moment money is a bit tight so frack away and nuclear power for me please . let those with the money for a moral green cause pay the rest

  • rate this

    Comment number 380.

    Having just suffered a 16 hour powercut, do they deserve more profits? NO
    Should we all pay more when wages are static? NO

  • rate this

    Comment number 379.

    now let me see if i got it right?

    You want me to pay for extra energy production and maintenance with my tax and then you want to charge me for the privilege of using this energy generation and maintenance

    Sounds like a good scam to me

  • rate this

    Comment number 378.

    What a joke, private firms profits protected by charging consumers more, so much for better value.My bill has just jumped up to £159 per month, before this additional rise.Would it not have been better to keep them nationalized and then extra for improvements would be adding worth to a NATIONAL ASSET, not boosting the balance sheet of foreign companies.


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